Life Insurance Warning for Federal Employees and Military Veterans

According to this report by Bloomberg (a credible source):

If you are a federal employee and keel over, the FEGLI (the federal group life insurance) lump-sum payment is not up-front money, but a so-called “checkbook” tapped into a non-insured (by FDIC) account held by MetLife. A similar fate awaits the VA life insurance payouts for a deceased veteran. Risky, risky, risky…

If you are on FEGLI, you need to be aware of this and plan accordingly. For most of us, this would mean instructing our designated beneficiary to proactively write the full lump-sum “check” for the FEGLI payout to our own bank account, trust or other chosen account — ASAP, after receiving the “checkbook” from MetLife. This way, the money is held by your own estate or beneficiary, not MetLife, who
1. would earn more in interest and investment on your death benefits than they will pay out to your beneficiary (effectively profiting from your demise), and
2. aren’t FDIC-insured like your bank account. This probably is the most critical part, because your life insurance payout is utterly at the mercy of MetLife’s solvency, which has become a concern!

Even after sifting through the typical, journalistically formulaic, bleeding-heart anecdotes, and getting down to actual salient facts buried within, the article is worth reading.

The key part: “The federal government doesn’t even regulate the life insurance it supplies, via MetLife, to its own employees in a program called Federal Employees’ Group Life Insurance. As the VA does for soldiers, the U.S. Office of Personnel Management sends handbook to nonmilitary government workers — some 4 million active employees and retirees. The handbook says their life insurance policies automatically pay out death benefits in the form of a “money-market-account checkbook.” The 217-page handbook omits that the money isn’t FDIC insured and will stay with MetLife until someone writes a “check.”

Also troubling are the inconsistencies from OPM (Office of Personnel Management) and Metlife as the article discusses. Given their mixed messages and ambiguities, I wouldn’t trust either OPM *or* MetLife as far as I could spit ’em. Again, your beneficiary or trust probably should cash FEGLI out ASAP into an insured account after you die. It’s the safest strategy for most of us under FEGLI.

Spread the word to your favorite military veteran or civilian federal employee.



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