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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.
.
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