Will somebody please tell me what season it is? Those words were inevitably uttered whenever Elmer Fudd, that intrepid hunter, went out hunting that wascally wabbit, Bugs Bunny. Poor Elmer always ended up very confused as to whether he should be hunting duck, moose, rabbit and sometimes even, baseballs. I feel that many federal government employees are equally confused now that OPM has announced that there will be the first open season for the employee group life insurance program (aka FEGLI) since 2005. Most of the federal employees that I have spoken with were either unaware that the open season is scheduled for September 1-30, 2016 and if they had heard about it, they don’t really understand what it means to them. I will attempt to clear up the confusion for both the federal government employees and those in the private sector as well because almost all group life insurance will work in the same manner.
So let’s start with the basics, what does open season mean. Open season means that anyone who had not previously participated can now elect coverage or those who are participating in the program, can increase their coverage without having to prove that they are insurable. On its face that seems to be great, I can get a large amount of life insurance up to a maximum of six times my annual salary within the FEGLI program (and most other group policies will place similar caps on the maximum amount of group insurance) and all I need to do is sign a few pieces of paper, sounds pretty simple. I would agree with you that the process is very simple, but would argue that the decision whether to participate or not is one that needs much more scrutiny. Now you are probably saying to yourself at this point, what is there to think about, group insurance is always the best way to go if you can, isn’t it? The simple answer is that is not that simple. There are a number of things that you need to consider while deciding whether the open season is your best option. To better understand your options, you need to understand some of the drawbacks associated with both the federal government group program and most private group insurance offerings as well.
The major problem with most group insurance is the very thing that make people like it so much - anyone can get it. Since everyone within a given age bracket pays the same rate, the company must find a way to mitigate the insurance risk posed by the 800 lb. chain smoking diabetic man with a heart condition who pays the same rate as a marathon running female with no unhealthy characteristics. Clearly neither are paying for the risk that they pose as individuals, as the marathon runner is subsidizing the cost for the unhealthy person. Another way that the insurance company manages that risk is by having the premiums increase as you age, so the older you get the more expensive your coverage will become. Yet another issue with the group life program is that insurance amounts are often limited to a specified maximum (either a flat dollar amount or a multiple of salary), so you may not be able to get the amount of overage that you want and/or need.
So then what is the answer to the open season question? The answer to that is simple, do your research. More times than not, if you are in average to better health and do not smoke, then doing this research can save you thousands of dollars over the duration of the coverage that you need. The easiest way to do this is to see what an individual policy would cost you for the coverage that you have through the group policy and compare the costs over the next 10, 15, 20 or even 30 years depending on how long you want the coverage for. Just as an example, I just finished working up a comparison for one of my clients and over the next 30 years by going with the private insurance option she is projected to save over $150,000 for the same level of coverage. There are countless other examples of these savings both in the federal plan and in the private sector plans. Just because you have an open season door doesn’t mean that you should walk through it.
So the action plan would look like this:
- carefully analyze how much coverage you need
- determine how long you require the coverage
- discuss it with your financial advisor or insurance professional
- finally, compare the costs of both the group and an individual plan and see what makes the most sense for your individual circumstances.
So don’t be like Elmer and know what to do when open season comes around or else you might be the one saying this, “Oh, Mr. Game Warden, I hope you can help me. I've been told I can shoot wabbits, and goats, and pigeons, and mongooses, and dirty skunks, and ducks. Can you tell me what season it weawy is?”
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