Can You Sell Your FEGLI Life Insurance?

The Federal Employees’ Group Life Insurance (FEGLI) program provides group term life insurance for federal employees and retirees, with coverage tied to employment or retirement status. Unlike whole life policies, FEGLI does not build cash or loan value. However, under specific circumstances, a FEGLI policy may be eligible for a life settlement, where it is sold to a third party for a lump sum.

Understanding FEGLI’s Nature and Sale Options

FEGLI is a group term life insurance program, with coverage tied to federal service or retirement. Unlike permanent policies that build cash value, FEGLI provides a death benefit without an investment or savings feature.

FEGLI coverage is not an individual asset that can be freely owned, assigned, or transferred. It is contingent upon an individual’s status as a federal employee or annuitant, meaning FEGLI policies do not fit standard sale or transfer processes of privately held, cash-value policies.

Despite these structural differences, certain third-party companies facilitate life settlements for FEGLI policies. A life settlement involves selling an existing life insurance policy to a third party for a cash sum greater than the policy’s cash surrender value (if any) but less than its death benefit. Eligibility for such settlements depends on factors like the insured’s age, generally 65 or older, or a diagnosis of a life-threatening illness.

This process is an assignment of the policy to the life settlement provider, allowing the policyholder to receive a portion of the death benefit while living. While not a conventional sale, it offers an avenue for certain policyholders to access funds from their FEGLI coverage.

Strategies for Managing Your FEGLI Coverage

Federal employees and retirees have several options to manage or adjust their FEGLI coverage, including reducing, canceling, or converting it to an individual plan upon separation. Each choice has specific procedures and implications.

Reducing FEGLI coverage involves decreasing the amount of Basic, Option A, Option B, or Option C insurance you carry. Employees complete OPM Form 2817, the Life Insurance Election Form. Sign only for the coverage you wish to retain and submit the form to your agency’s human resources or payroll office. For retirees, reducing coverage requires sending a signed letter to the Office of Personnel Management’s (OPM) Retirement Office, clearly stating the desired reduction, along with your annuity number or Social Security number and signature.

Canceling coverage means terminating all or specific parts of your FEGLI insurance. Employees can cancel coverage at any time by completing OPM Form 2817 and indicating the cancellation in Box 5, then submitting it to their human resources office. If you are a retiree, you can cancel coverage by sending a signed letter to the OPM Retirement Office, similar to the reduction process. Canceling Basic insurance terminates all associated optional coverages.

Converting FEGLI coverage to an individual policy is an option available when you separate from federal service or lose eligibility to continue group coverage, such as upon retirement. This conversion allows you to transition your Basic, Option A, or Option B coverage into a private, non-group policy without a medical examination. The conversion typically results in a whole life policy offered by a private insurer, with MetLife currently administering the FEGLI program and conversions.

To convert, apply within 31 days of your separation or loss of eligibility. Your agency will provide a Notice of Conversion Privilege (SF 2819) and may also provide SF 2821 (Agency Certification of Insurance Status). Complete the conversion application and submit it directly to the Office of Federal Employees’ Group Life Insurance (OFEGLI), an administrative unit of MetLife. Premiums for the converted policy will be higher than FEGLI rates and are determined by your age and the type of new policy.

Key Factors Before Changing Your FEGLI

Before altering your FEGLI coverage, consider several factors that can influence your long-term financial security. Modifying life insurance can have lasting effects, so a thorough evaluation of your personal circumstances is prudent.

One important consideration is your current health status. If your health has declined since you initially enrolled in FEGLI, obtaining new, comparable life insurance coverage from a private insurer might be challenging or result in significantly higher premiums. FEGLI’s group nature often provides coverage without medical underwriting, which can be advantageous if you have pre-existing conditions.

Evaluating your future insurance needs is another important step. Consider your ongoing financial obligations, such as mortgage payments, debts, and the financial needs of any dependents. Your life insurance coverage should align with these responsibilities to provide adequate protection for your beneficiaries. As dependents become financially independent, your coverage needs may decrease.

Comparing the cost of FEGLI premiums with alternative coverage options is also advisable. While FEGLI can be affordable during active employment, the premiums for Optional coverage, particularly Option B, can increase significantly with age, especially in retirement. New individual policies may require medical underwriting, which could lead to higher costs if your health is not optimal, but a comparison can reveal potential savings or more tailored coverage.

Finally, consider how FEGLI coverage changes in retirement. Basic FEGLI coverage can be continued into retirement if you meet certain requirements, such as the “five-year rule,” but the coverage amount may automatically reduce over time, and premiums for some options can become quite substantial. Consulting with a qualified financial advisor or insurance professional can help you assess your individual situation and make informed decisions about your life insurance portfolio.