Office of Personnel Management

Retirement and Insurance Service

1920 1954 1959 

 

1986 

Benefits Administration Letter

Number: 95-212 Date: March 22, 1995 

SUBJECT: Federal Employees' Group Life Insurance

Viatical Settlement

___________________________________________________________________________

The purpose of this Benefits Administration Letter is to transmit information concerning

viatical settlement.

This information is of interest to terminally ill employees and annuitants. The material also

discusses the difference between assignment to a viatical settlement firm and living benefits,

which become effective July 25, 1995.

The attached information was made available at the February 23 IAG meeting; however,

not all agencies were able to attend that meeting.

Please pass the information on to all of your field installations, so that they may be able to

counsel their terminally ill employees concerning viatical settlement.

Attachment
 

1For the purposes of these questions and answers, the term "annuitant" also refers to

compensationers who are continuing their FEGLI coverage as compensationers while in receipt of

compensation payments from the Department of Labor's Office of Workers' Compensation

Programs.

VIATICAL SETTLEMENT

AND

THE FEDERAL EMPLOYEES'

GROUP LIFE INSURANCE

(FEGLI) PROGRAM 

What is viatical settlement?

Viatical settlement is the "sale" (or assignment) of someone's life

insurance coverage to a third party, known as a viatical settlement

firm (VSF), in exchange for cash. The percentage of the face value

that the VSF will offer varies, somewhere in the range of 60 percent

to 85 percent of the total face value of the insurance coverage. VSFs

will generally accept assignment from individuals with life

expectancies of 24 months or less. If the insured assigns 100 percent

of his/her insurance to a VSF, the VSF will receive the full life

insurance death benefit upon the person's death. 

The difference between what the person receives in cash from the VSF

and the full face value of the insurance is the VSF's revenue. The

purchase price paid for the policy is dependent primarily on the

person's life expectancy and the current cost of funds. The VSF's

costs include interest expenses on the money paid to the person,

underwriting expenses, general operating expenses, etc. The VSF tries

to cover these costs from the revenue earned on each transaction. 

VSFs will pay a smaller percentage of the face value to a person with

a longer remaining life expectancy. This accounts for the time value

of money. For example, if someone has 24 months to live, they will

receive a smaller percentage of the face value of their insurance than

someone with only 6 months to live. This is because the firm will

have longer to wait to receive the full face value of the person's

insurance upon their death. 

How does this help terminally ill Federal employees and annuitants1?

Effective October 3, 1994, Public Law 103-336 amended the life

insurance law to allow all employees and annuitants enrolled in the

Federal Employees' Group Life Insurance (FEGLI) Program to assign

their life insurance to another person(s), firm(s) or trust(s). 

Previously, the right to assign life insurance was limited to Federal
3

judges. Today, terminally ill Federal employees and annuitants

enrolled in the FEGLI Program can assign their insurance to a VSF in

exchange for cash, if they so desire. 

This can help terminally ill employees and annuitants by giving them

an influx of cash (which otherwise would have been paid to their

beneficiary(ies) only after their death). The employees and

annuitants can use the money to finance needed medical care and

otherwise improve the quality of their final days of life. 

How do viatical settlements differ from the new Living Benefits

provisions of the FEGLI Program?

The FEGLI Living Benefits Act (Public Law 103-409) is effective

July 25, 1995. Under this new provision of the FEGLI Program, Basic

benefits paid before death will be available if the employee or

annuitant has a life expectancy of 9 months or less. So, in advance

of July 25, assignment of FEGLI coverage to a VSF may be a terminally

ill person's only opportunity to receive cash in advance of death. 

Also, the FEGLI Living Benefits Act applies only to Basic life

insurance. Assignment applies to Basic and Option A and Option B. 

Therefore, even after the FEGLI Living Benefits Act becomes effective,

a VSF is the only source of cash in advance of death for Basic and

Option A and Option B. 

What is the difference between assigning benefits and designating a

beneficiary?

Assigning benefits transfers ownership of the employee/annuitant's

FEGLI coverage to the assignee(s). The insured no longer has control

over his/her insurance coverage and can no longer designate

beneficiaries. Assignment is irrevocable. Designating a beneficiary

simply declares to whom payment of death benefits should be made. The

insured retains ownership of the insurance and retains the right to

change or cancel the designation at any time. A designation of

beneficiary is revocable. 

What if employees/annuitants complete a Designation of Beneficiary

after they have assigned their insurance? 

Upon a valid assignment of FEGLI insurance coverage, all Designations

of Beneficiary completed by the insured, both before and after the

effective date of the assignment, become void. 

Can only part of an employee's or annuitant's FEGLI coverage be

assigned -- for example, only Basic or only Option A?
4

No. Either all of it must be assigned or none of it. But it doesn't

all have to be assigned to the same person or firm. Assignments must

be made in percentages of the total insurance (e.g., 50 percent of the

total to one person/firm, 25 percent to another and the remaining 25

percent to another; or 100 percent to one person/firm, etc.) All

percentages must add up to 100 percent. Assignments cannot be made so

that Basic is assigned to one person/firm, Option A to another, etc. 

Therefore, terminally ill employees and annuitants may be able to

negotiate with a VSF to accept assignment of only a percentage of

their total of their Basic, Option A and Option B in exchange for

cash, and assign the remaining percentage to someone else, perhaps a

family member. Obviously, they will receive less cash from the VSF

than if they assigned 100 percent to the firm. However, this does

provide a mechanism to "retain" a death benefit for a survivor, if the

VSF agrees to it. 

It is also possible for the VSF to designate the employee/annuitant's

estate or a family member as a beneficiary for a portion of the death

benefit. However, the employee or annuitant must understand that

designations of beneficiary can be revoked without knowledge or

consent of the designee. If the insurance is assigned to the firm,

the firm (like any assignee) may designate whomever it chooses and may

change this designation at any time. Depending on the circumstances,

the employee or annuitant may wish to enter into a private agreement

with the firm wherein the firm promises to keep the designation valid. 

However, any contractual arrangements are private negotiations between

the employee/annuitant and the VSF and do not have any effect on the

validity of a FEGLI Program designation. 

What are the options after July 25? 

After July 25, terminally ill employees and annuitants enrolled in the

FEGLI Program who wish to receive a pre-death benefit will have a

choice --

!

They can assign their Basic and all optional

insurance (except Option C) to a VSF in

exchange for approximately 60-85 percent of

the face value of that coverage. NO death

benefit would be payable to their survivors. 

The VSF would receive the entire death

benefit (unless they negotiate to assign only

a percentage of their coverage, as explained

above).

OR
5

!

They can elect FEGLI Living Benefits. 

Employees must choose either --

!

full Living Benefits (their full Basic

benefit, discounted by an approximately 6

percent factor, which does not vary by life

expectancy, to account for lost interest to

the FEGLI Program; the Program will not

charge a profit factor)

OR

!

partial Living Benefits (a percentage of

their Basic benefit, in a multiple of $1,000,

discounted as described above). They cannot

elect the remaining portion of their Basic

benefit as a Living Benefit later. They may

only elect Living Benefits once. The

remaining portion of their Basic benefit will

become payable as a death benefit.

Annuitants who wish to elect Living Benefits

must elect the full amount of their Basic

Benefit (discounted as described above). 

Annuitants are not eligible for partial

Living Benefits. 

If employees/annuitants elect Living

Benefits, their optional insurance, if any,

is unaffected and is available for payment to

their beneficiary(ies) upon their death. 

Employees and annuitants may not elect Living Benefits and assign

their insurance. They must choose one or the other or neither. 

Why would an employee or annuitant want to choose viatical settlement

after July 25?

After July 25, viatical settlement may be a good choice for terminally

ill employees and annuitants with MORE than 9 months to live, or those

who wish to receive cash based on the face value of their Basic AND

optional coverages. Remember, the FEGLI Living Benefits provision

will only apply to Basic, NOT the optional coverages. Assignment
6

applies to ALL of the employee/annuitant's coverage (except Option C

which cannot be assigned). Therefore, if terminally ill employees or

annuitants are enrolled in Option A and/or Option B, they may be able

to receive more money while they are living from a VSF than they would

receive from the FEGLI Program by electing Living Benefits. 

For example, suppose an employee/annuitant's Basic coverage is $40,000

and he/she has three multiples of Option B ($114,000). Suppose the

VSF pays 60 percent of the face value of the Basic plus Option B. 

Sixty percent of the total ($40,000 + $114,000) is $92,400. This is

still greater than a full Living Benefit (approximately 94 percent of

$40,000, which is $37,600). 

What should a terminally ill employee or annuitant consider before

making such a decision to receive money in advance of their death?

Terminally ill employees and annuitants should assess their financial

needs to determine whether it makes sense to receive money against

their life insurance coverage. Just because these cash benefits are

available does not mean they are appropriate for each terminally ill

employee or annuitant. 

If terminally ill employees and annuitants wish to have access to cash

benefits before July 25, then they should consider assigning their

coverage to a VSF. Depending on their life expectancy, assignment to

a VSF may be their only opportunity to obtain a pre-death benefit. 

Once they have made an assignment, they can never change or revoke it,

even if their circumstances change. If they elect additional

insurance or if their salary increases (applicable only to employees),

the additional coverage is automatically covered by the existing

assignment. 

Assuming they do not wish to have access to cash benefits before July

25, they need to consider how large of a residual benefit, if any,

they wish to leave for their survivors upon their death. 

If they choose assignment, ALL of their insurance (except Option C)

must be assigned (although, as stated previously, it does not all need

to be assigned to the same person or firm -- the employee/annuitant

may negotiate with the VSF to accept assignment of only a percentage

of the life insurance so that the remaining percentage can be assigned

to one or more survivors, or they may negotiate an agreement whereby

the VSF agrees to complete a designation of beneficiary in favor of

one or more survivors for part of the assigned death benefit). 

If they choose FEGLI Living Benefits, they will still retain all of

their optional insurance which will be payable to their designated

beneficiary(ies) or other survivor. 
7

Terminally ill employees (but not annuitants and compensationers) have

the option of electing only a portion of their Basic benefit as a

Living Benefit (a multiple of $1,000). In this way, they can retain a

residual death benefit payable to their beneficiaries/survivors. If

their Basic coverage subsequently increases (i.e., a pay increase),

the additional coverage would be payable as the death benefit, not as

an additional Living Benefit. In addition, benefits will be payable

upon their death for any optional insurance they may have. 

Terminally ill employees and annuitants also need to consider their

projected life expectancy. VSFs will generally accept assignment from

individuals with life expectancies of 24 months or less. FEGLI Living

Benefits will only be available to individuals with life expectancies

of 9 months or less. 

Are these benefits taxable?

Yes, both benefits paid by a VSF AND living benefits paid by the FEGLI

Program are taxable as income. Either or both of these may change

based on pending legislation.

Who pays the premiums for the FEGLI coverage if it has been assigned

to a VSF?

The FEGLI Program requires that employees and annuitants continue to

pay FEGLI premiums through withholding from their paycheck or annuity,

even after the employee or annuitant has assigned his/her insurance to

a VSF or, for that matter, to anyone else. They cannot cancel the

withholdings. Some VSFs will offer to assume payment of the premiums

for the remainder of the employee's or annuitant's lifetime. However,

there is no mechanism for the Federal Government to accept premiums

directly from a VSF. 
8

As an alternative, employees and annuitants may attempt to negotiate

an agreement with the VSF that premium expenses payable for their

remaining life expectancy be added to their settlement payment from

the firm at the time of closing of the transaction. This is a private

negotiation between the employee/annuitant and the firm. 

Who pays the premiums for the FEGLI coverage if Living Benefits have

been elected?

If full Living Benefits are elected (the only option available to

annuitants), then premiums for Basic stop. If partial Living Benefits

are elected (only available to employees), then premiums for Basic are

prorated depending on the dollar value of the remaining Basic benefit. 

In both cases, premiums for optional insurance remain unchanged. 

How would a terminally ill employee or annuitant locate a VSF?

Support groups for victims of terminal illnesses such as cancer and

AIDS generally can help locate such firms. In addition, financial

planners, estate planners, social workers, and physicians specializing

in terminal illnesses should be aware of these firms and may provide

referrals. 

What paperwork is involved in a viatical settlement?

Employees/annuitants first need to contact a VSF. They will need to

sign a release (provided by the firm) that will allow their personnel

office or retirement system to provide information on their FEGLI

coverage to the VSF. Personnel office/retirement system staff cannot

provide information directly to any VSF without a release from the

employee or annuitant. 

Once a written release signed by the employee or annuitant is

received, personnel office/retirement system staff may provide the

information requested by the VSF. VSFs cannot tell employees or

annuitants how much they will pay until they know the details of the

employee or annuitant's coverage. Therefore, it is important for

personnel office/retirement system staff to provide this information

in a timely manner.

 

Some sample data items that may be requested are: 

GROUP POLICY NUMBER:

#17000-G WITH THE METROPOLITAN LIFE INSURANCE COMPANY

CERTIFICATE NUMBER:

THERE IS NO "CERTIFICATE NUMBER" FOR FEGLI INSURANCE. YOU CAN PROVIDE THE EMPLOYEE OR

ANNUITANT'S SOCIAL SECURITY NUMBER IF THE SSN IS AN ITEM ON THE RELEASE FORM SIGNED BY

THE EMPLOYEE OR ANNUITANT.
9

PROVIDE A COPY OF THE 

ENROLLEE'S GROUP CERTIFICATE:

THE EMPLOYEE'S OR ANNUITANT'S CERTIFICATE OF INSURANCE IS A COPY OF HIS/HER MOST RECENT

SF 2817 ALONG WITH A COPY OF THE FEGLI BOOKLET
10

PROVIDE THE TOTAL DEATH BENEFIT:

THIS IS AN ESTIMATE OF THE EMPLOYEE OR ANNUITANT'S DEATH BENEFIT (AMOUNT OF THEIR BASIC

COVERAGE PLUS ANY OPTIONAL COVERAGE). FOR ANNUITANTS, DETAILS ABOUT THE POST-65

REDUCTION SCHEDULE OF EACH OF THEIR COVERAGES (BASIC AND OPTION A AND OPTION B, IF

APPLICABLE) SHOULD BE PROVIDED. A COPY OF THE FEGLI BOOKLET SHOULD ALSO BE PROVIDED,

WITH THE DETAILS ABOUT THE EXTRA BENEFIT, IF APPLICABLE, HIGHLIGHTED. 

IS THERE A WAITING PERIOD BEFORE THE ENROLLEE CAN ASSIGN HIS/HER INSURANCE? 

THE EFFECTIVE DATE OF THE EMPLOYEE'S OR ANNUITANT'S COVERAGE CAN BE PROVIDED ALONG WITH

AN EXPLANATION THAT ASSIGNMENT BECAME AVAILABLE TO ALL ENROLLEES ON OCTOBER 3, 1994,

AND THAT ALL ENROLLEES ARE IMMEDIATELY ABLE TO ASSIGN THEIR COVERAGE WITH NO "WAITING

PERIOD". 

WHAT IS THE MONTHLY PREMIUM?

PROVIDE THE MONTHLY PREMIUM

DOES THIS POLICY HAVE ACCELERATED BENEFITS?

NOT AT PRESENT. YES, AS OF JULY 25, 1995. 

IS PARTIAL ACCELERATION PERMITTED?

YES FOR EMPLOYEES, NO FOR ANNUITANTS. EMPLOYEES CAN ELECT TO ACCELERATE (THAT IS,

ELECT FEGLI LIVING BENEFITS ON) ALL OR A PORTION OF THEIR BASIC LIFE INSURANCE. 

ANNUITANTS CAN ONLY ELECT FULL LIVING BENEFITS. HOWEVER, IF EMPLOYEES OR ANNUITANTS

ASSIGN THEIR INSURANCE, THEY CANNOT ELECT ACCELERATED (LIVING) BENEFITS, AND IF

EMPLOYEES OR ANNUITANTS ELECT ACCELERATED (LIVING) BENEFITS, THEY CANNOT ASSIGN THEIR

INSURANCE. 

CAN THE FIRM PAY THE PREMIUMS?

NO. PREMIUMS MUST CONTINUE TO BE WITHHELD FROM THE EMPLOYEE'S SALARY OR THE

ANNUITANT'S ANNUITY. EMPLOYEES AND ANNUITANTS CANNOT CANCEL THESE PREMIUMS. EMPLOYEES

OR ANNUITANTS WHO ASSIGN THEIR INSURANCE TO A VSF MAY ATTEMPT TO NEGOTIATE WITH THE VSF

TO RECEIVE A LUMP SUM PAYMENT EQUAL TO THE TOTAL AMOUNT OF THE PREMIUMS THAT WILL BE

WITHHELD FROM SALARY/ANNUITY DURING THE EMPLOYEE/ANNUITANT'S REMAINING LIFE. THIS IS A

PRIVATE NEGOTIATION BETWEEN THE EMPLOYEE/ANNUITANT AND THE VSF. 

ARE THERE ANY ASSIGNMENTS AGAINST THE POLICY?

VERIFY THAT THE EMPLOYEE OR ANNUITANT HAS NOT PREVIOUSLY ASSIGNED HIS/HER INSURANCE. 

THE EMPLOYEE OR ANNUITANT CAN ONLY ASSIGN HIS/HER INSURANCE ONCE AND IT IS IRREVOCABLE.

DOES THE POLICY INCLUDE A DISABILITY WAIVER?

NO.

CAN THIS POLICY BE CONVERTED IN CASE OF TERMINATION BY THE OWNER?

THE GROUP COVERAGE CANNOT BE CONVERTED BY THE INSURED OR THE ASSIGNEE WHEN IT IS

CANCELLED VOLUNTARILY BY THE EMPLOYEE OR ANNUITANT, NOR, IF THE COVERAGE HAS BEEN

ASSIGNED, BY THE ASSIGNEE.

ARE THERE OTHER EVENTS THAT WOULD TRIGGER CONVERSION BY THE FIRM?

YES. IF THE EMPLOYEE QUITS EMPLOYMENT OR RETIRES AND THE POLICY HAS BEEN ASSIGNED, THE

ASSIGNEE (IN THIS CASE, THE VSF) CAN CONVERT THE POLICY TO A PRIVATE ONE. ANNUITANTS

HAD A CONVERSION PRIVILEGE WHEN THEY RETIRED -- THERE IS NO OTHER OPPORTUNITY TO

CONVERT THEIR COVERAGE. 

IS THERE A MINIMUM AMOUNT OF COVERAGE REQUIRED TO OBTAIN ASSIGNMENT?

NO.

DOES THE ABSOLUTE ASSIGNMENT GRANT RIGHTS TO THE ASSIGNEE TO CONVERT TO AN INDIVIDUAL

POLICY?

YES, IF THE EMPLOYEE QUITS EMPLOYMENT OR RETIRES. NO FOR AN ANNUITANT.

CAN AN IRREVOCABLE BENEFICIARY BE DESIGNATED?

NO. DESIGNATIONS ARE REVOCABLE. HOWEVER, ASSIGNMENTS ARE IRREVOCABLE. IF THE

EMPLOYEE OR ANNUITANT ASSIGNS HIS/HER INSURANCE, ALL CURRENT DESIGNATIONS ARE VOID. 

THE ASSIGNEE AUTOMATICALLY BECOMES THE BENEFICIARY AND IS FREE TO DESIGNATE WHOMEVER

HE/SHE CHOOSES. IF HE OR SHE DOESN'T DESIGNATE ANYONE, THEN THE ASSIGNEE IS THE
11

BENEFICIARY.

YOU WILL ALSO LIKELY BE ASKED FOR ASSIGNMENT AND DESIGNATION OF BENEFICIARY FORMS. YOU

SHOULD PROVIDE A BLANK COPY OF EACH FORM TO THE FIRM. 

If the employee or annuitant chooses to make an assignment, he/she

will need to complete an RI 76-10 assignment form and indicate the

name of the VSF in the space provided for the assignee. The employee

should sign the form, have his/her signature witnessed in writing by

two people, and return the form to his/her employing office or

retirement system. The assignment is effective on the day that a

properly completed form is received in the employing office, for

employees, or the retirement system, for annuitants. 

Other information concerning assignment is contained on the form.

The chart on the following page summarizes the differences between

Living Benefits and Assignment. 
12

Viatical Settlement Agreement FEGLI Living Benefit

Earliest 

Date

Available

O

c

t

o

b

e

r

3

,

1

9

9

4

(

f

o

r

a

l

l

e

n

r

o

l

l

e

e

s

)

July 25, 1995
13

Life

Expectancy

Requirement

2

4

m

o

n

t

h

s

o

r

l

e

s

s

(

g

e

n

e

r

a

l

l

y

)

9 months or less
14

Insurance

Involved 1

0

0

%

o

f

B

a

s

i

c

,

O

p

t

i

o

n

A

a

n

d

O

p

t

i

o

n

B

(

i

f

h

e

l

d

)

100% of Basic (employees and

annuitants)

Part of Basic (employees only --

must be a multiple of $1,000)
15

Percentage 

Of 

Face Value

Paid to

Employee/

Annuitant

6

0

t

o

8

5

p

e

r

c

e

n

t

T

h

e

p

e

r

c

e

n

t

a

g

e

v

a

r

i

e

s

,

a

n

d

94 percent (approximately)
16

Source 

Of

Payment

V

S

F

t

o

w

h

o

m

b

e

n

e

f

i

t

s

a

r

e

a

s

s

i

g

n

e

d

(

s

o

l

d

)

FEGLI Program
17

Residual 

Life 

Insurance

Benefit

N

o

n

e

,

u

n

l

e

s

s

t

h

e

V

S

F

a

g

r

e

e

s

t

o

a

c

c

e

p

t

o

n

l

y

a

p

e

r

Option A and Option B, if held.

Remaining Basic for employees

who elect partial living benefits
18

Payment 

of

Premiums

E

m

p

l

o

y

e

e

o

r

a

n

n

u

i

t

a

n

t

c

o

n

t

i

n

u

e

s

t

o

p

a

y

f

u

l

l

p

Premium payments for Basic end

for annuitant and employees who

elect a full living benefit. 

For employees who elect partial

living benefits, premiums are

prorated depending on the amount

of Basic remaining.
19
Office of Personnel Management

Retirement and Insurance Service

1920 1954 1959 

 

1986 

Benefits Administration Letter

Number: 95-212 Date: March 22, 1995 

SUBJECT: Federal Employees' Group Life Insurance

Viatical Settlement

___________________________________________________________________________

The purpose of this Benefits Administration Letter is to transmit

information concerning viatical settlement.

This information is of interest to terminally ill employees and

annuitants. The material also discusses the difference between

assignment to a viatical settlement firm and living benefits,

which become effective July 25, 1995.

The attached information was made available at the February 23

IAG meeting; however, not all agencies were able to attend that

meeting.

Please pass the information on to all of your field

installations, so that they may be able to counsel their

terminally ill employees concerning viatical settlement.

Attachment