Candace and Justin: Millennial Growing Family with Growing Needs

Justin (age 36) has been working for the justice department for 5 years and has just found out he is expecting his second child with his wife of 10 years Candace and he believes he needs to increase his life insurance. The last time he increased his FEGLI was 4 years ago when his first son was born.  He thinks he’ll need the insurance of about 20 years.

He currently has FEGLI Basic, Option A and Option B for 3 x his 95,000/year salary. Physically, he isn’t in great shape anymore but has no major medical issues.  He gets his yearly physical and besides needing to drop about 10lbs (who doesn’t?) he is in good health! 

Right now—he has $421,600 of coverage and his cost is $21.00/pay, or $546.00 annually.  But remember, FEGLI goes up each year. If he holds FEGLI for 20 years, by the time he’s done he will be paying $114.80/pay or $2985.00 annually.  His life insurance over the 20 years would have cost him $25,116, or an average of 2093 per year with a final life insurance death benefit of 612,000.

Remember, Justin wants to increase his FEGLI insurance to the max due to the upcoming birth.  He can opt to increase his insurance to 5X his salary under option B, and his coverage will increase to $591,600 for the first year.  His new premium starts off at $26.10 per pay ($679 annually) and by the in the 20thh year, the same 5X salary will cost him $174.80/pay, or $4545 annually.  The 20-year total cost of the policy amounts to $35,519 or an average $2991 per year with a final life insurance death benefit of $912.000.

Should he keep FEGLI or look to an outside A Rated Insurance Company?

Running a 20 Year term policy the price of $612,000 policy would be approximately $450/year, slightly lower than he’s paying now (but with more life insurance) However, with level term insurance the premiums remain fixed!   Meaning his current 450 will remain the same and the total out of pocket for 20 years is only $9000!  That’s almost $14,000 less than he would be paying in FEGLI.  (remember, FEGLI goes up each year)

And what if he and gets more life insurance like he wanted?  His new premium would start at about $600 per year, but once again remain level so his total out of pocket would be $12,000-almost $23,000 less than he’s paying for FEGLI!

Those savings amount to $1900 per year.  Imagine is he had invested difference saved each difference each year and earned a 7% rate of return over 20 years?  That fund would have about $36,000 in it when the term was up!