A lot of our financial life is dictated by deadlines.
For federal employees, there are a few coming up that shouldn’t be ignored. One is a deadline involving long-term-care insurance. But for now, I want to address the open season for life insurance, which is over at the end of this month. Even if you aren’t a federal employee, you should start thinking about your life insurance choices when your open enrollment starts this fall.
Federal employees have until Sept. 30 to add or make changes to the Federal Employees’ Group Life Insurance program. During this open season, employees can apply for term life insurance for themselves and eligible family members without getting a medical exam or answering health questions.
Those last two points are significant, says Barry Korb, a Maryland-based, fee-only certified financial planner.
“The removal of the medical underwriting requirement is particularly important for any employees who for health reasons have not been able to get needed life insurance for themselves or their family members,” Korb says. “It is the rare open season that offers you a way out of this quandary. This open season can be a godsend. You should act now.”
There are no regularly scheduled open seasons to elect, increase or change coverage under the federal program. The last one was in 2004.
In most cases, if you are a new federal employee, you’re automatically covered by basic term life insurance. The premiums are deducted from your paycheck unless you waive coverage. The government pays one-third of the coverage, and the employee pays the remaining two-thirds. Employees of the U.S. Postal Service get the basic fully paid.
Basic coverage is based on a worker’s annual salary rounded up to the next $1,000, plus an additional $2,000. For example, an employee making $65,500 a year will have $68,000 of basic life insurance under the program, Korb says. In addition to basic coverage, an employee can carry even more insurance. There are three options:
Option A: Add $10,000 in coverage.
Option B: Insure your life for multiples of one to five times your annual basic pay rounded up to the next even $1,000.
Option C: Insure your family, with coverage for your spouse up to $25,000 and up to $12,500 for each eligible dependent child under 22.
Please note that elections or changes made during this open season won’t go into effect until Oct. 1, 2017.
There are other times when you can change your coverage. If you have a qualifying life event, such as marriage, divorce or the birth of a child, you can make changes. Or you can do it at any time by passing a physical exam.
Korb recommends that federal employees shop around, despite the subsidies for premiums. But if you’re running out of time, get the federal coverage now and still shop around. You can always cancel if you find a better or cheaper policy, he said.
For anyone thinking about life insurance, keep in mind why you need it: to help take care of folks who depend on your income. Federal employee or not, figure out how much life insurance you need to carry. One rule of thumb is to get enough insurance to cover 10 times your annual gross salary.
While rules of thumb are helpful, this one doesn’t take into account your entire financial situation, including debts and assets.
Bankrate.com provides an estimate of how much coverage you need based on your answers to a series of questions, the first of which is how much you think you’ll need for your funeral.
Next, you’re asked to estimate how many years your dependents — your spouse and/or children — would need to survive without your income. As Bankrate.com puts, “Would your income need to be replaced until your children finish their education, or until your spouse retires, gets a job or dies?”
In its calculations, Bankrate.com assumes certain rates of return should your beneficiaries choose to invest the insurance money. And keep in mind that they wouldn’t want to risk investing money that they need in the short term to pay bills, Korb said.
The reality is, we don’t know how much life insurance we’ll need exactly because there are so many variables. But take some of the guesswork out by using the life insurance calculator at Bankrate.com, which, if nothing else, should initiate a good conversation with your family about what they’ll need in the event of your death.