Living Benefits
WHAT ARE 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 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. A viatical settlement is an exchange for cash for the life insurance due to a terminally or chronically ill person. (See Assignment chapter).
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. Any contract entered into with a viatical settlement company is a private agreement between you and the company.
Eligibility
You are eligible to elect a living benefit if you are an employee, annuitant, or compensationer enrolled in the FEGLI Program who has been diagnosed as terminally ill with a life expectancy of 9 months or less, the Office of Federal Employees' Group Life Insurance (OFEGLI) agrees with that diagnosis, 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 payment as 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 a full living benefit.
Limit on Number of Elections
You can elect living benefits only once.
If you elect a full living benefit, you have no Basic insurance left. 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 a 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. Agencies should provide the employee with the phone number for OFEGLI, as listed above.
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 amount available to be paid as a living benefit will be reduced by an amount representing lost earnings to the Employees' Life Insurance Fund because of the early payment of benefits. The amount is called an actuarial reduction.
Completing the Election
You complete Part A of the Claim for Living Benefit (FE-8), and your doctor completes Part B. Send the form back to OFEGLI. The address, shown on the FE-8 form, is P.O. Box 6512, Utica, NY 13504-6512.
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 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 OFEGLI does not approve your living benefit application, you will be notified. There are no appeal rights; however, you can provide OFEGLI with additional medical evidence to support your claim or reapply if future circumstances warrant.
Employing Office Responsibilities during the Election Process
When OFEGLI receives your application for a living benefit, it will send fax your employing office a Certification for FEGLI Living Benefits for Employees (FE-8A). (If you are retired OFEGLI will send a certification form to OPM.) 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 ensure 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 this certification be completed and returned to OFEGLI promptly. Agencies must fax the completed certification to OFEGLI, at 315-792-6603 or 312-792-6802, 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 is complete (so OFEGLI can start processing it) and also mailing it. In this case the required original signatures will be on 2 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 FE-8C, Explanation of Benefits), the personnel office must produce a Notification of Personnel Action (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 and Option C, if applicable.
When the OPM Retirement Office receives notification of a living benefits election, it will make changes to the on-line annuity roll system to show that the retiree elected living benefits. No SF 50 forms are completed for retirees.
EFFECT OF A LIVING BENEFIT ELECTION
Post-election BIA
When you cash or deposit the living benefits check, 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 BIA); if you elected a full living benefit, the post-election BIA is $0.
Your employing office does not calculate the amount of your post-election BIA; this is done by OFEGLI.
This post-election BIA never changes. Even if your salary changes, the post-election BIA remains the same. Your premiums also are based on your post-election BIA. The age factor used in computing benefits payable upon your death also will not change.
Example
Ben elects a partial living benefit; his post-election BIA is $15,000. Three months later he gets a pay raise; 2 months later he turns 41; 1 month later he dies.
At the time of death, his BIA is $15,000; his pay raise had no effect on his BIA, since a post-election BIA 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 his living benefit election. His beneficiary(ies) would therefore receive $22,500 (Basic insurance of $15,000 x an age factor of 1.5 [the age factor for age 40]).
Retirement Election for Post-65 Reductions
The BIA 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 (SF 2818), unless you decide to cancel or convert your coverage. You cannot change to 75 Percent Reduction at a later date.
A living benefits 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 reduced, and based on your post-election BIA.
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 benefits election has no effect on your Optional insurance. All Optional insurance remains in place, and your living benefits election has no effect on the withholdings for Optional insurance.
Although changes in pay do not change the amount of your Basic insurance after a living benefits 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 (AD&D) coverage on Basic insurance, since your Basic Insurance Amount is $0. (AD&D coverage remains in effect for Option A.)
If you elect a partial living benefit, you still have A&&D coverage, but only on your post-election BIA.
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 cannot elect a living benefit. Your assignee(s) cannot 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 Basic insurance, as well as Optional insurance.
Incorrect Prognosis
If you elect a living benefit and live longer than the expected 9 months, you do not have to repay the living benefit.
Tax Treatment of Living Benefits
Living benefit payments are not subject to Federal income tax.
You should consult a tax advisor or your state's tax department for specific information concerning state income tax laws.
HISTORICAL INFORMATION
Living Benefits Allowed
Living benefits first became available July 25, 1995 as a result of Public Law 103-409.
Tax Treatment
Prior to January 1, 1997, living benefits payments were subject to Federal income tax. Effective January 1, 1997, living benefits payments are not subject to Federal income tax.
Assignment
Until October 17, 1997, individuals who elected a living benefit could not later assign their remaining insurance.
U.S. Office of Personnel Management 1900 E Street NW, Washington, DC 20415 | (202) 606-1800 | TTY (202) 606-2532