Living Benefits
DEFINITION
Living benefits are life insurance benefits paid to
you while you are still living, rather than paid to a
beneficiary or survivor when you die. (They are also
known as accelerated benefits in the private sector.)
Living benefits became effective July 25, 1995.
Living
Benefits vs. Assignment to a Viatical Settlement Company
Living benefits payments come from the Employees' Life
Insurance Fund (part of the U.S. Treasury). Viatical
settlement companies are private sector businesses not
connected with the Federal Government.
The amount of insurance available and the requirements
for receiving a living benefit payment are set forth in
Federal law. Viatical settlement companies set their own
requirements and payment amounts.
Eligibility
You are eligible to elect a living benefit if you are
an employee, annuitant, or compensationer covered under
the FEGLI Program who has been diagnosed as terminally
ill with a life expectancy of nine months or less, and
you have not assigned your insurance.
You cannot apply in advance; you must be
terminally ill at the time of application.
Amount
of Insurance Available for Election
Only Basic insurance is available for a living benefit. Optional insurance cannot be paid as a
living benefit.
If you are an employee, you can elect either a full living benefit, i.e., all of your Basic insurance, or a partial living benefit (which must be expressed as a multiple of $1,000).
Annuitants and compensationers can elect only full living benefits.
Limit on
Number of Elections
You can elect living benefits only once.
If you elect a full living benefit, you have no more
Basic insurance. If you elect a partial living benefit,
you cannot later elect another living benefit from the
remaining Basic insurance.
ELECTION PROCEDURES
Application Process
If you want to apply for a living benefit, you must
contact the Office of Federal Employees' Group Life
Insurance (OFEGLI) at 1-800-633-4542. OFEGLI will send
you an application form, Claim for Living Benefits
(FE-8).
Note: Agencies cannot obtain a
supply of FE-8, and employing offices are not to give
this form to employees who ask about living benefits.
When OFEGLI sends the FE-8, it also sends a
calculation sheet, so you can estimate the amount of
Basic insurance available. The calculation sheet takes
into account the age
multiplication factor for employees under age 45 and
the post-65
reduction for annuitants age 65 and over.
The benefits available will be reduced by an amount
representing interest lost to the Employees' Life
Insurance Fund because of the early payment of benefits.
Completing the
Election
You complete Part A of the Claim for Living Benefits
(FE-8), and your doctor completes Part B. You then send
the form back to the Office of Federal Employees' Group
Life Insurance (OFEGLI).
Only the terminally ill person can apply for a living benefit. A guardian, someone with power of attorney, or
any other person cannot apply for a living benefit on your behalf.
OFEGLI determines whether you qualify for a living benefit.
Living Benefits
Approval
If the Office of Federal Employees' Group Life
Insurance (OFEGLI) approves your living benefits
application, you will receive a check, along with an
Explanation of Benefits (FE-8C). You can change your mind
about electing a living benefit up until you cash or
deposit the check. The effective date of the living benefit election is the date you cash or deposit the
check.
If you decide not to elect the living benefit, you
should write "Void" on the check and return it
to OFEGLI. If the living benefit payment is not cashed
before your death, your representative must return the
check to OFEGLI. Your beneficiaries may then file a claim
for death benefits.
Living Benefits Disapproval
If the Office of Federal Employees' Group Life
Insurance (OFEGLI) does not approve your living benefit application, you will be notified. There are no appeal
rights; however, you can provide additional medical
evidence to support your claim or reapply if future
circumstances warrant.
Employing
Office Responsibilities during the Election Process
When the Office of Federal Employees' Group Life
Insurance (OFEGLI) receives your application for a living benefit, it will send or fax your employing office an
Agency Certification for FEGLI living benefits (FE-8A).
Your employing office must certify whether you are
enrolled in Basic insurance, whether you have assigned your insurance, and
the amount of your current annual basic pay.
Like the Agency Certification of Insurance Status (SF
2821), the FE-8A requires dual certification, i.e., it
must be certified by both a personnel official and a
payroll official. Employing offices must make sure that
the addresses of the personnel and payroll offices are
complete, since OFEGLI uses these addresses to send the
agency a copy of the Explanation of Benefits (FE-8C).
It is critical that this certification be
completed and returned to OFEGLI promptly. Agencies
must fax the completed certification to OFEGLI, at
201-395-7950, and then mail the original to OFEGLI.
If an employing office's personnel and payroll
functions are in different geographic locations, the
personnel office can send the FE-8A with its signature
directly to OFEGLI and fax a copy to its payroll office.
The payroll office can make its certification on the
faxed copy, faxing it to OFEGLI when it's complete (so
OFEGLI can start processing it) and also mailing it. In
this case the required original signatures will be on two
separate copies of the FE-8A.
Employing
Office Processing of a Living Benefit Election
When your employing office receives notification of a living benefit election (i.e., a copy of the Explanation
of Benefits), the personnel office must produce an SF 50.
The appropriate Nature of Action code for the SF 50 is
either 805 (Elected full living benefits) or 806 (Elected partial living benefits).
Note: There will be no change to the codes
used in box 27 on this form. The code for FEGLI will
remain the same as it was before the living benefit election. You still have Basic insurance; however the
amount of insurance in force is either $0 (in the case of
a full living benefit) or a reduced amount (in the case
of a partial living benefit).
The "Remarks" section of the SF 50 should
state:
"Code B67
Elected full living benefits on ________.
Basic coverage now equals zero."
OR
"Code B68
Elected partial living benefits on ________.
Post-election Basic Insurance Amount is ________.
Must elect "No reduction" for Basic insurance at
retirement."
The "Remarks" section should state what
Optional insurance, if any, you have, including the
number of multiples of Option B, if applicable.
EFFECT OF A LIVING BENEFIT ELECTION
Post-election
Basic Insurance Amount
When you cash or deposit the living benefit check, the
Office of Federal Employees' Group Life Insurance
(OFEGLI) sends a copy of the Explanation of Benefits
(FE-8C) to your personnel and payroll offices. This
Explanation of Benefits shows the effective date of your living benefit election and the amount of Basic insurance
that remains (the post-election Basic Insurance Amount); if you elected a full
living benefit, the post-election Basic Insurance Amount is $0.
Your employing office does not calculate the amount of
your post-election Basic Insurance Amount; this is done
by OFEGLI.
This post-election Basic Insurance Amount never changes. Even
if your salary changes, the post-election Basic Insurance
Amount remains the same. The age factor used in computing
benefits payable upon your death also will not change.
Example
Ron elects a partial living benefit; his
post-election Basic Insurance Amount is $15,000. Three
months later he gets a pay raise; two months later he
turns 41; one month later he dies.
At the time of death, his Basic Insurance Amount
is $15,000; his pay raise had no effect on his Basic
Insurance Amount, since a post-election Basic Insurance
Amount never changes. Although he was 41 at the time of
death, the death benefits are computed based on age 40,
since that was his age at the time of election. His
beneficiary(ies) would therefore receive $22,500 (Basic
Insurance Amount of $15,000 x an age factor of 1.5 [the
age factor for age 40]).
Retirement
Election for Post-65 Reductions
The Basic Insurance Amount for an employee who elects
a living benefit cannot change. If you elected a Partial living benefit and you qualify to continue
coverage into retirement, you must elect "No Reduction" for Basic insurance on the Continuation of Life Insurance Coverage form (SF
2818), unless you decide to cancel or convert your
coverage. You cannot change to 75% Reduction at a
later date.
A living benefit election has no effect on your post-65 reduction election for Option B or Option C.
Changes
in Withholdings and Contributions
If you elect a full living benefit, withholdings and
contributions for Basic insurance stop.
If you elect a partial living benefit, withholdings
and contributions for Basic insurance are based on your post-election
Basic Insurance Amount.
Changes in withholdings and contributions are
effective at the end of the pay period in which your living benefit election is effective. If the pay period
ends before your employing office receives its copies of
the Explanation of Benefits (FE-8C), it must make a
retroactive adjustment.
MISCELLANEOUS PROVISIONS
Optional Insurance
A living benefit election has no effect on your
Optional insurance. All Optional insurance remains in
place, and withholdings for Optional insurance continue unchanged.
Although changes in pay do not change the amount of
your Basic insurance after a living benefit election, the
amount of Option B insurance does continue to change when
pay increases or decreases. If you elect a partial living benefit, withholdings for Basic insurance and Option
B insurance will be based on different amounts.
Accidental
Death & Dismemberment Coverage
If you elect a full living benefit, you lose Accidental
Death & Dismemberment coverage on Basic
insurance, since your Basic Insurance Amount is $0.
(Accidental Death & Dismemberment coverage remains in
effect for Option A.)
If you elect a partial living benefit, you still have
Accidental Death & Dismemberment coverage, but only
on your post-election
Basic Insurance Amount.
Designations
of Beneficiary
A living benefit election has no effect on your
Designation of Beneficiary. Option A benefits, Option B
benefits, and any Basic benefits remaining after a partial living benefit election are paid to your designated beneficiary (or
according to the order of
precedence, if there is no designation).
However, if you designated Basic insurance to one
beneficiary and Optional insurance to another beneficiary
and you elect a full living benefit, the beneficiary
designated to receive Basic benefits will not receive any
payment when you die. The beneficiary designated to
receive Optional insurance will still receive those
benefits.
Assignment
If you have assigned
your insurance, you can't elect a living benefit.
Your assignee(s) can't elect a living benefit on your
behalf.
If you elect a full living benefit, you can assign
Optional insurance. If you elect a partial living benefit,
you may assign any remaining insurance (Basic and/or
Optional).
Incorrect Prognosis
If you elect a living benefit and live longer than the
expected nine months, you do not have to repay
the living benefit.
Tax
Treatment of Living Benefits
Living benefits payments received on or after January
1, 1997, are not subject to Federal income tax (Pub. L.
104-191, the Health Insurance Portability and
Accountability Act of 1996, Subtitle D, Treatment of
Accelerated Death Benefits). Living benefits payments
received before that date were subject to Federal income
tax.
This law amends the Federal Internal Revenue Code,
which directly affects Federal income taxes, not State
taxes. However, many states have laws, regulations, or
rulings concerning the taxability of living benefits
(also called accelerated death benefits). You should
consult a tax advisor or your State's tax department for
specific information concerning State income tax laws.