The FEGLI Living Benefit: taking Basic early

What it is

The Living Benefit lets someone who is terminally ill receive their FEGLI Basic insurance as a lump sum while they are still alive, rather than leaving the whole amount as a death benefit.

It exists for a practical reason: the costs that arrive with a terminal diagnosis, from care to travel to simply stopping work, arrive before the insurance would otherwise pay.

Who can elect it

• Employees, annuitants and compensationers enrolled in FEGLI.
• A documented medical prognosis of a life expectancy of nine months or less.
• Employees may take the full amount or a partial amount, in multiples of $1,000.
• Annuitants and compensationers may take only the full amount.
• Not available if you have assigned your insurance. If an assignment is in place, neither you nor the assignee can elect a Living Benefit.

How much you get

The payment is your Basic Insurance Amount, plus the Extra Benefit if you are under 45, as it would stand nine months after OFEGLI receives your completed claim.

From that, an actuarial reduction is taken, reflecting the interest the fund loses by paying early. OFEGLI sends a calculation sheet with the form so you can work out the figure before deciding, and that is worth doing rather than guessing.

A partial election leaves a post-election Basic amount behind, which remains payable to your beneficiaries. A full election leaves nothing of Basic.

How to apply

• Call OFEGLI on 1-800-633-4542. They send the form. It is not available from your HR office, from OPM Retirement Services, or as a download.
• Form FE-8: you complete Part A, your doctor completes Part B with the prognosis.
• Return it to OFEGLI at the address on the form. OFEGLI decides eligibility and the amount.
• Ask for the calculation sheet when you call, so the reduced figure is in front of you before anything is signed.

If the person who is ill cannot manage the paperwork, this is exactly what a power of attorney is for. Sort that first if it is not already in place.

What changes afterwards

• Your survivors receive no Basic death benefit if you took the full amount, and only the remainder if you took part.
• Premiums adjust. For an annuitant taking the full benefit, Basic deductions stop. For an employee, what continues depends on how much Basic is left.
• Options A, B and C are untouched, both the coverage and the premiums.
• Living longer than nine months changes nothing. The payment is not clawed back, and Basic does not come back.

Accelerated death benefits paid to a terminally ill person are generally excluded from federal income tax, but confirm that with a tax professional for your own circumstances before relying on it.

Deciding whether to use it

The trade is money now against money for your family later, minus the reduction. A few things make the decision clearer:

• Work out what the family will still have. Options A and B are unaffected, and a death in service also brings the FERS death benefit and a survivor annuity. The calculator counts all of it.
• A partial election is often the better answer for an employee: enough to cover what is in front of you, with the rest left for your family.
• Check other sources first. Sick leave, annual leave, the leave transfer programme, disability retirement, and a TSP hardship or age-based withdrawal may cover the need without touching the insurance.
• Be careful with viatical settlement companies. They buy policies from terminally and chronically ill people, they are private businesses with no connection to the federal government, and they set their own terms. The Living Benefit is set by federal law; a viatical offer is a negotiation.
• Update your beneficiary forms while you are at it. Five separate forms control five separate benefits.

This is a decision worth making with your family and, if you can, with a benefits officer who has handled it before.

Common questions