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Federal Emplyees – Divorce – Life Insurance Federal Eemplyes Group Life INS. (FEGLI)


Federal employees are entitled to substantial life insurance benefits that are often overlooked in divorce actions. Moreover, each federal employee has the option to voluntarily and significantly increase the amount of his or her life insurance protection. In the course of negotiation and preparation of the Property Settlement Agreement it is essential for the practitioner to have full knowledge of how much life insurance protection is available to a Former Spouse.

As with federal employee retirement benefits federal employee life insurance benefits are subject to court orders:

A State court can order direct payment of FEGLI benefits to a Former Spouse.

Since July 22, 1998, the Office of Federal Employees' Group Life Insurance (OFEGLI) must pay death benefits in accordance with the terms of a valid court decree of divorce, annulment, or legal separation, or the terms of a court order or court-approved property settlement agreement relating to such a court decree, regardless of whether the federal employee actually completes a designation complying with the court order.

A court decree of divorce, annulment, or legal separation, or the terms of a court-approved property settlement agreement incident to any court decree of divorce, annulment, or legal separation, may direct that an insured employee or former employee make an irrevocable assignment of the employee's or former employee's incidents of ownership in insurance under this chapter (if there is no previous assignment) to the person specified in the court order or court-approved property settlement agreement. [5 USCA 8706(e)(2)]

Attorney Alert:

DO NOT SEND YOUR FEGLI ORDER TO OPM!

To be valid the court order submitted to OFEGLI must be a certified copy. The appropriate office must receive a certified copy before the insured's death and this Order must expressly provide for someone to receive the member’s FEGLI benefits. When a valid court order is in effect, the insured individual cannot change his/her designation, unless the person(s) named in the court order agrees in writing or the court order is later modified.

To effectively negotiate and craft language for a Property Settlement Agreement regarding FEGLI the practitioner is provided with the following foundation information. Please note, we have not given details on the applicable Life Insurance forms. For example; for help with form 2817 contact Troyan Inc.

Types of insurance.

(a) There are two types of life insurance under the FEGLI Program:

Basic and Optional.

(b) There are three types of Optional insurance: Option A (standard

optional insurance), Option B (additional optional insurance), and

Option C (family optional insurance).

Basic Insurance amount.

1. The employee’s annual rate of basic pay, rounded to the next higher

thousand, plus $2,000; or

2. $10,000; whichever is higher. There is no maximum BIA.

The cost of Basic insurance is shared between the insured individual and the Government. The employee pays two-thirds
of the cost, and the Government pays one-third.

Employees under age 45 covered for Basic insurance automatically have extra coverage without paying any additional premium. This extra coverage increases the amount of Basic insurance payable at the time of death, if the employee dies before age 45.

To determine the amount of the extra benefit, multiply the Basic Insurance Amount by the appropriate age multiplication factor as follows:

Employee Age Age Multiplication Factor

At Death

35 or under 2.0

36 1.9

37 1.8

38 1.7

39 1.6

40 1.5

41 1.4

42 1.3

43 1.2

44 1.1

45 and over 1.0

Example

Bill Jones, employee dies at age 40, with an annual salary of $67,250.
His Basic Insurance Amount is $70,000 (round up to next thousand and
then add $2,000). The age multiplication factor is 1.5. The amount of Basic
life insurance payable as a result of Bill Jones death at age 40 is: $105,000.

Amount of Optional insurance.

(a) Option A coverage is $10,000. Option A cannot exceed this

amount.

(b)(1) Option B coverage comes in 1, 2, 3, 4, or 5 multiples of an

employee's annual pay (after the pay has been rounded to the next higher

thousand, if not already an even thousand). There is no maximum amount for

each multiple.

(2) The amount of Option B coverage automatically changes whenever

annual pay is increased or decreased by an amount sufficient to raise or

lower pay to a different $1,000 bracket.

(c) Option C coverage comes in 1, 2, 3, 4,

or 5 multiples of the following amounts: $5,000 on the death of a spouse

and $2,500 on the death of an eligible child. Payments are made to the

insured individual.

If a member elects Basic, then he or she may elect or retain both Option
B and Option C, unless he or she has previously waived any or all of these options. See SF 2817).

Costs for Optional Insurance (Subject to Change).

The insured individual pays the full cost of all Optional

insurance. There is no Government contribution toward the cost of any

Optional insurance.

Rates for Option A – Standard

Cost per $1,000.00

Age Group Biweekly Monthly

Under 35 $0.30 $0.65

35-39 $0.40 $0.87

40-44 $0.60 $1.30

45-49 $0.90 $1.95

50-54 $1.40 $3.03

55-59 $2.70 $5.85

60+ $6.00 $13.00

Rates for Option B – Additional (per $1,000)

Effective January 2005, the biweekly cost per $1,000 of Option B coverage is:

Age Group Biweekly Monthly

ages 35 and under $0.03 $.065

ages 35 through 39 $0.04 $.087

ages 40 through 44 $0.06 $.13

ages 45 through 49 $0.09 $.195

ages 50 through 54 $0.14 $.303

ages 55 through 59 $0.28 $.607

ages 60 through 64 $0.60 $1.3

ages 65 through 69 $0.72 $1.56

ages 70 through 74 $1.20 $2.6

ages 75 through 79 $1.80 $3.9

ages 80 & Over $2.40 $5.2

Rates for Option C - Family

A member may elect one, two, three, four or five multiples of coverage. Each multiple is equal to $5,000 ($25,000 maximum) for a spouse and $2,500 ($12,500 maximum) for each eligible dependent child.

Employee's Age Group Biweekly Monthly

Under 35 $0.27 $0.59

35-39 $0.34 $0.74

40-44 $0.46 $1.00

45-49 $0.60 $1.30

50-54 $0.90 $1.95

55-59 $1.45 $3.14

60-64 $2.60 $5.63

65-69 $3.00 $6.50

70-74 $3.40 $7.37

75-79 $4.50 $9.75

80 and over $6.00 $13.00

The needs of a Former Spouse are many and the loss of alimony or pension benefits can be economically devastating. To protect your client against economic harm note the relatively low costs of FEGLI coverage. As explained immediately below this coverage can extend beyond the working life of the employee. This coverage can be effective over the lifetime of the employee/retiree.

Control and Options.

A strong reason to assign FEGLI in divorce is that this gives the Former Spouse control over the beneficiary of the insurance plus a valuable option:

If a member has his or her insurance assigned by a court order, it is the assignee (Former Spouse), rather than the member who is entitled to convert Basic, Option A, and Option B coverage. Thus, the Former Spouse may continue this protection for as long as he or she deems it economically advisable. These options give the Former Spouse the right to select any type of life insurance customarily issued by the insurance company he or she may select, except term insurance, universal life insurance or any other type of life insurance with an indeterminate premium (variable premium). Additionally, it cannot include disability or Accidental Death & Dismemberment benefits. An eligible insurance company is any that has been accepted by OPM as eligible and that has agreed to issue such policies under the provisions of the FEGLI contract.

For Domestic Relations Orders against FEGLI, please contact Troyan, Inc.