Civil Service Federal Employees Federal Employees Federal Employees

Retirement Group Life Health Benefits Retirement

System Insurance Program System

United States

Office of Personnel Management

Retirement and Insurance Service

Benefits Administration Letter

Number: 98-201 Date: March 9, 1998 

Subject: Federal Employees' Group Life Insurance and Federal Employees Health Benefits: 

Reissuing Important Information

The Office of Personnel Management communicates with agencies regarding insurance matters by means

of Benefits Administration Letters (BALs). (Before BALs the means of communication was the

INSURANCE OFFICERS INFORMATION BULLETIN, or IOB). All BALs issued since the beginning

of 1996 are available on our website at http://www.opm.gov.

We are taking this opportunity to reissue some older, but very important, information that needs to be

readily available. This information relates to areas that we get a lot of questions about.

Included is information from the following BALs relating to the Federal Employees' Group Life Insurance

(FEGLI) and Federal Employees Health Benefits (FEHB) Programs.

BAL 95-221 (originally issued 10/10/95) - Assignment of FEGLI Coverage

BAL 95-216 (originally issued 5/4/95) - Living Benefits

BAL 95-212 (originally issued 3/22/95) - Viatical Settlement

BAL 95-204 (originally issued 1/13/95) - Establishing Procedures for Processing

Reconsideration Requests

BAL 95-203 (originally issued 1/12/95) - The Incontestability Clause

We are also including information from IOB NO. 261 (originally issued 8/6/92) regarding the coverage of

foster children, including grandchildren, under the FEHB Program.

In all cases, where parts of the information have changed since the original issuance, we have made the

revisions to the attached text.

Abby L. Block, Chief

Insurance Policy 

 and Information Division

Attachments
ORIGINALLY ISSUED AS BENEFITS ADMINISTRATION LETTER 95-

203 ON JANUARY 12, 1995. (MODIFIED TO REFLECT UPDATED

INFORMATION.)

SUBJECT: Federal Employees' Group Life Insurance: The Incontestability Clause

The purpose of this Letter is to inform agencies of a clause in the Federal Employees' Group

Life Insurance (FEGLI) contract concerning erroneous enrollments.

Employees insured under the FEGLI Program are entitled to the protection of the

Incontestability Clause of the FEGLI contract. This clause says that an enrollment made in

error cannot be challenged more than two years after the error occurred. (This applies to life

insurance enrollments only, not to enrollments in the Federal Employees Health Benefits

(FEHB) Program.)

In practical terms, this means that an agency error permitting enrollment for Basic, Option A,

Option B, or Option C coverage (or permitting additional multiples of Option B coverage)

should be allowed to stand, if the coverage remained in force for two years or more during the

employee's lifetime and the error was not detected and corrected within two years after the

date the election was made.

This clause may not be used to allow enrollments for employees who are excluded from

coverage by law or whose type of appointment is excluded by regulation (e.g., intermittent

employees or temporary employees).

This clause applies only to errors that occur during employment. Retirement systems (e.g.,

CSRS or FERS) cannot use the Incontestability Clause to correct errors that occur after

retirement.

The existence of this clause does not permit agencies to become less diligent in their

administration of the FEGLI Program. Erroneous enrollments must still be avoided

whenever possible. Agency personnel are encouraged to perform desk audits of their

employees' personnel files to uncover FEGLI enrollment errors. Those that occurred more

than two years ago should be examined to see whether the Incontestability Clause applies. 

Those that occurred less than two years ago must be corrected in the usual manner, giving the

affected employees the right to reconsideration.

Here are some examples of when the Incontestability Clause may be used:

Example 1 An employee who had previously waived coverage transfers from

one agency to another without a break in service and is allowed to

elect insurance at the new agency. This is an agency error. 

However, if more than two years passes before anyone discovers the

error, the erroneous election must be allowed to stand.

Example 2 An employee is allowed to elect Option B without a qualifying event
(e.g., marriage, divorce, etc.) and without providing the results of a

physical (SF 2822). This is an agency error. However, if more

than two years passes before anyone discovers the error, the

erroneous election must be allowed to stand.

Example 3 An employee submits acceptable results of a physical. He/she then

submits an SF 2817 electing Basic, Option A, and Option C. If the

agency accepts the SF 2817, this is an agency error. Acceptable

results of a physical do not permit election of Option C. However,

if more than two years passes before anyone discovers the error, the

erroneous election must be allowed to stand.

Example 4 An employee transfers from one agency to another without a break

in service. He/she has Basic, Option A, and Option C at his/her

former agency. This is SF 50 equivalent code F. However, at the

new agency the SF 50 is coded with J. This is Basic, Option A,

Option B (one multiple), and Option C. Therefore, through a

coding error, the employee was erroneously enrolled in Option B. 

However, if more than two years passes before anyone discovers the

error, the erroneous election must be allowed to stand.

Example 5 An employee elected Basic during the 1993 open enrollment period. 

His/her enrollment was made effective immediately (rather than

waiting until he/she met the pay and duty status requirements of the

open enrollment period). This is an agency error. However, if

more than two years passes before anyone discovers the error, the

erroneous election must be allowed to stand.

Payment or nonpayment of premiums is not the final determining factor in using this clause. 

Each case must be examined on its own merits.

Applying the Clause

Once you discover an error, you must examine the circumstances of the error to determine

whether the Incontestability Clause applies. You should ask yourself the following questions

concerning the error:

! Did the error occur more than two years ago?

! Did the error occur while the person was employed (rather than after he/she

retired)?

! Is the employee otherwise eligible to enroll in the Program (i.e., not excluded

by law or type of appointment)?

! Does the error involve more than simply an erroneous withholding?

Once you have determined that the clause does apply, you should prepare a note to the file

explaining the details of the error, the date it occurred, the date it was discovered, and the fact

that the enrollment is now valid due to the Incontestability Clause. If there is an applicable SF
2817 in the file, the note should be attached to the permanent file copy of the SF 2817. Upon

the employee's retirement, the note should be forwarded along with the SF 2817 to the

retirement system. If there is no applicable SF 2817 (e.g., an SF 50 coding error occurred),

you must still provide an explanatory note to the file which must be forwarded to the

retirement system upon the employee's retirement.

You must also provide a note in the Remarks section of the SF 2821 prepared for retiring

employees that explains that the Incontestability Clause was used to ratify an erroneous

enrollment.

Premiums

Premiums are due for any erroneous coverage allowed to stand. If premium deductions have

been made, they are not refundable. If premium deductions have not been made, or if you

have already refunded premiums and it is subsequently determined that the coverage should be

allowed to stand, premium deductions should be made or recovered. As with any

underdeduction of premium, agencies may waive collection from the employee but must

submit the total amount due for the coverage for deposit in the Fund.

Retiring Employees

Enrollments that are allowed to stand due to the Incontestability Clause become valid

enrollments. If a retiring employee was enrolled in the FEGLI Program for at least the five

years immediately prior to retirement (or from the first opportunity to enroll), even if the

enrollment was in error but then was allowed to stand, he/she is still entitled to carry the

enrollment into retirement. The five-year rule must still be met, however. The

Incontestability Clause cannot be used to waive the five-year rule.
ORIGINALLY ISSUED AS BENEFITS ADMINISTRATION LETTER 95-

204 ON JANUARY 13, 1995. (MODIFIED TO REFLECT UPDATED

INFORMATION.)

SUBJECT: Federal Employees Health Benefits and Federal Employees' Group Life

Insurance: Establishing Procedures for Processing Reconsideration

Requests

______________________________________________________________________________

Purpose The purpose of this Benefits Administration Letter is to

provide guidance to agencies in setting up the

administrative review procedures for reconsideration of

initial decisions about health benefit and life insurance

enrollment issues.

This responsibility, formerly handled by the Office of

Personnel Management, was delegated to agencies. Final

regulations were published in the Federal Register on

December 27, 1994.

________________________________________________

What is Reconsideration consists of a review of an initial decision

Reconsideration? to determine whether the law and regulations were

correctly applied to the case. It is the employee's final

level of administrative review for enrollment and coverage

decisions under the Federal Employees Health Benefits

(FEHB) and Federal Employees' Group Life Insurance

(FEGLI) Programs.

The law and regulations set forth the circumstances that

allow enrollees to enroll or change enrollment in the

FEHB Program and to cancel waivers of basic life

insurance and change optional coverage under the Federal

Employees' Group Life Insurance Program. The

regulations also give the effective dates of enrollments and

changes in enrollment.

________________________________________________

Initial decisions When an employing office receives an employee's SF

2809 (or when an employee otherwise requests a change

in enrollment), it must decide whether or not to accept the

employee's health benefits election. The events that allow

employees to enroll or change enrollment, and the

timeframes within which the changes may be made are set

forth in 5 CFR 890.301. The effective date of the change

is also based on FEHB regulations.
Similarly, when an employing office receives an

employee's SF 2817 (or the employee otherwise requests

a change in coverage), it must decide whether or not to

accept the employee's change in life insurance coverage. 

By law, Basic life insurance coverage is automatic unless

the employee waives it. Employees who have Basic life

insurance coverage may elect or waive Optional coverage. 

The circumstances under which an employee's previous

waiver of Basic or Optional life insurance may be

cancelled and the effective dates of changes in coverage

are set forth in 5 CFR part 870. Additional guidance is

provided in the FEGLI Handbook for Personnel and

Payroll Offices.

If the employing office decides that the employee is not

eligible to make the change, it must give the employee a

written explanation of the reason the change in enrollment

or coverage was not allowed. The written decision must

include the address of the office making reconsideration

decisions, the timeframe for requesting reconsideration

(30 days from the date of the written notice), and a

statement that a copy of the written decision should be

submitted with a request for reconsideration. This written

explanation is considered the initial decision.

________________________________________________

Deciding what office The office that makes the reconsideration decisions must

will make the be at either a higher level or in a different office than the

reconsideration office that made the initial decision.

decision

It is important that you notify the offices that make initial

decisions of the identity of the office making

reconsideration decisions because they must include that

information when they give the initial decision.

________________________________________________

Making decisions In some cases, the law or regulations provide for

about retroactive retroactive effective dates. In these cases, there is no

corrections need for an employing office to decide whether a

retroactive correction is appropriate.

Generally, however, changes are made prospectively. 

That is, when the agency decides an employee should

have been allowed to enroll or change enrollment at some

time in the past, it accepts an SF 2809 or SF 2817 from

the employee making the change. Under FEHB

regulations, the SF 2809 is normally effective the first

day of the pay period beginning after the employing office

receives the SF 2809. In the case of the SF 2817, the

effective date depends on the election being made.
In certain cases, the employing office may consider an

employee's request that the change be made retroactive to

an earlier date, generally the date it would have been

effective if he or she had been able to make a timely

election.

Exception: If the administrative error was made before

January 1, 1995, the employing agency does not have the

authority to make a retroactive correction. Instead, the

employee must request a retroactive correction from:

Office of Personnel Management

Retirement and Insurance Service

Office of Insurance Programs

P.O. Box 436

Washington D.C. 20044

________________________________________________

Effective dates 1. Life insurance.

C The FEGLI law provides that Basic life

insurance coverage is automatic unless the

employee waives it. Therefore, if an agency

discovers that an employee should have been

covered by Basic life insurance, but no

withholdings were made, the correction must

be made retroactively.

C See section S4-7 of the FEGLI Handbook for

instructions on adjusting premium errors.

C See subchapter S2 of the FEGLI Handbook

for additional information about effective

dates of life insurance coverage and changes in

coverage.

2. Health benefits. See § 890.301 of the FEHB

regulations for information about effective dates of

health benefits enrollments and changes in

enrollment.

Some initial decisions Initial decisions that comply with the law and regulations

cannot be overruled by cannot be overruled by reconsideration.

reconsideration

Example 1:

OFEGLI approves the medical evidence submitted

by an employee who wants to cancel a waiver of

Basic life insurance and/or Optional insurance. The
employee then elects Option C--Family insurance. 

The employing office denies the election of Option

C and the employee requests reconsideration. The

office making the reconsideration decision cannot

overrule the employing office because OFEGLI

approval of medical evidence does not allow an

employee to elect Option C--Family insurance.

Example 2.

An employee has a child who dies within 60 days

after birth. After the death of the child, the

employee elects Option C--Family coverage based

on the birth of the child. The employee requests

that the election be made retroactive to the child's

birth. Although the employee could elect Option C-

-Family coverage within 60 days after the birth of

the child, the effective date of the election is the day

the employing office receives the election. This

initial decision to deny a retroactive effective date

cannot be overruled by a reconsideration decision. 

(Employees may submit an election of Option C--

Family insurance before an anticipated event that

will add a family member to their household--such

as marriage or birth--so that it will become effective

when the event occurs.)

Example 3.

An employee who had waived Optional life

insurance coverage separates from his or her

position and is reemployed less than 180 days later. 

The employee elects Optional life insurance at the

new agency. The employing office denies the

election. This initial decision cannot be overruled

by reconsideration because previous waivers remain

in effect when an employee goes from one agency to

another with a break in service of less than 180

days.

Example 4.

An employee lists parents who live with and are

dependent on the employee as family members

under his or her FEHB enrollment. The employing

office denies coverage of the parents. This initial

decision cannot be overruled by reconsideration

because the FEHB law does not provide for

coverage of an employee's parents as family

members.
Although a correct initial decision cannot be overruled by

a reconsideration decision, the employee has the right to

request reconsideration so that the initial decision can be

reviewed to determine whether it is correct.

________________________________________________

Incontestability See BAL 95-203 for information about incontestability.

clause

________________________________________________

Agencies cannot make The reconsideration process applies only to enrollment

decisions about issues. Agencies cannot make decisions about payment

payment of claims of claims.

Example 1.

An employee with Option C--Family has a stillborn

child. The employee asks the agency to help him or

her file a claim for the Option C--Family benefits. 

The employing office may explain that benefits are

not payable for stillborn children. Nevertheless, if

the employee persists, the agency must assist in the

filing of the claim. It is the responsibility of the

Office of Federal Employees' Group Life Insurance

(OFEGLI) to deny the claim.

Example 2.

An employee complains to his or her employing

office that his or her health plan has refused to pay a

claim. The employing office advises the employee

to follow the procedures set forth in the plan's

brochure regarding disputed claims. There is no

action the employing office itself can take to bring

about the payment of the claim.

________________________________________________

What is an equity Under the FEHB and FEGLI regulations, OPM has

and good conscience retained its authority to make equity and good conscience

determination? determinations. This authority allows OPM to order a

correction of an administrative error, but it is not a part of

the administrative review process. The administrative

review process ends with the agency's reconsideration.

OPM does not intend to use its authority to make equity

and good conscience decisions simply to "second guess"

agency reconsideration decisions. However, OPM, as

administrator of the FEHB and FEGLI Programs, must

have the ability to overrule an agency decision that is

obviously in disregard of law and regulations and has

serious adverse consequences for the employee.
The circumstances that would give rise to an order to

correct an administrative error on the basis of equity and

good conscience are rare. Normally, OPM will inform an

employee who asks OPM to overrule an agency's

reconsideration decision that the agency's decision is

final.

________________________________________________

Sample letters Sample letters are attached as an aid to offices making

reconsideration decisions. Agencies may tailor these

letters to meet their specific needs.

Job Aid 1:

This sample letter may be used when an employee

requests reconsideration, but does not send a written

initial decision.

Job Aid 2:

This sample letter denies a reconsideration request

from an employee whose election to change health

benefits enrollment was not based on an event

allowing change in enrollment.

Job Aid 3:

This sample letter denies a request to overrule a

FEGLI decision concerning medical insurability.

______________________________________________________________________________
Job Aid 1

Sample letter instructing employee

about obtaining an initial decision

(Name and address of employee)

Dear (employee's name):

This office does not make initial decisions concerning (health benefits/life insurance)

enrollments for employees of (Department or Agency). That is the responsibility of your

personnel office. You may request this office to reconsider your personnel office's written

decision refusing your election (to enroll or change your health benefits enrollment) (to acquire

or increase your life insurance coverage). Since your personnel office has not yet made its

decision in writing, it is premature to request this office to issue its reconsideration decision. 

If your personnel office gives a negative written decision, you may request this office to

reconsider it within 30 calendar days from the date of the decision. Please include a copy of

the initial decision in your request for reconsideration.

We are forwarding your request to your personnel office at the address shown below so that

they may make their initial decision. Your request has been forwarded to:

(name and address of personnel office

responsible for initial decision)

Sincerely,
Job Aid 2:

Sample letter denying a request

to change health benefits enrollment

when there was no event allowing change

(Name and address of employee)

Dear (employee's name):

This is in response to your letter requesting that this office reconsider your personnel office's

initial decision to deny you an opportunity to change your enrollment under the Federal

Employees Health Benefits (FEHB) Program. I am sorry, but I must also deny your request.

As you may know, opportunities to enroll or change enrollment in the FEHB Program are tied

to the occurrence of certain events. The events that permit an employee to change enrollment

and the time limits for submitting an election to change enrollments are listed in section

890.301 of title 5 of the Code of Federal Regulations, as well as on Standard Form 2809,

Health Benefits Registration Form.

Every employee is allowed to change plans during open season and there are many other

events that allow change as well. It is your responsibility to submit a timely election when a

permissible event occurs. Since your request to change your enrollment was not received by

your personnel office within the timeframe for any event allowing you to change, I must

concur with your personnel office's initial decision.

This is your final administrative review concerning this matter. You have no further

reconsideration rights.

Sincerely,
Job Aid 3:

Sample letter denying a request

to overrule an OFEGLI decision

concerning medical insurability

(Name and address of employee)

Dear (employee's name):

The Office of Federal Employees' Group Life Insurance (OFEGLI) determines whether an

applicant's proof of insurability is acceptable based on medical underwriting standards. You

do have the right to an administrative reconsideration made by this office of an initial decision

made by your employing office concerning your enrollment in the FEGLI Program. However,

you do not have the right to an administrative reconsideration of an OFEGLI decision to deny

coverage based on medical reasons.

If you have further questions regarding the denial of your request, you or your physician may

write to OFEGLI at 200 Park Avenue, New York, NY 10166-0188.

This is your final administrative review concerning this matter. You have no further

reconsideration rights.

Sincerely,
ORIGINALLY ISSUED AS BENEFITS ADMINISTRATION LETTER 95-

212 ON MARCH 22, 1995. (MODIFIED TO REFLECT UPDATED

INFORMATION.)

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, 1995, Interagency Advisory

Group (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
 For the purposes of these questions and answers, the term "annuitant" also 1

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 defined life expectancies which vary with each VSF. 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 annuitants ?

1

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 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?

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 the 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, 1995?

After July 25, 1995, 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

! 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 also elect Living Benefits and then assign the remainder of their

insurance.

Why would an employee or annuitant want to choose viatical settlement after July 25,

1995?

After July 25, 1995, 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 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 95 percent of $40,000, which is $38,000).

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,

1995, 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, 1995, 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.

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. 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 greater than 9
months. FEGLI Living Benefits will only be available to individuals with life expectancies of

9 months or less.

Are these benefits taxable?

No. Living Benefit payments and qualified payments from VSFs received after December 31,

1996, are not subject to Federal income tax. (See BAL 96-206.)

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.

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 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.

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

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?

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.

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 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.
Viatical Settlement Agreement FEGLI Living Benefit

Earliest October 3, 1994 (for all July 25, 1995

Date enrollees)

Available

Life Varies by VSF 9 months or less

Expectancy

Requirement

Insurance 100% of Basic, Option A and 100% of Basic (employees and

Involved Option B (if held) (100% must annuitants)

be assigned, although not

necessarily all to the same Part of Basic (employees only

person/firm) -- must be a multiple of

$1,000)

Percentage Of 60 to 85 percent 94 percent (approximately)

Face Value

Paid to The percentage varies, and is

Employee/ negotiated with the Viatical

Annuitant Settlement Firm (VSF)

Source VSF to whom benefits are FEGLI Program

Of assigned (sold)

Payment

Residual None, unless the VSF agrees to Option A and Option B, if

Life accept only a percentage of the held.

Insurance assignment or to designate a

Benefit portion to a survivor Remaining Basic for

employees who elect partial

Living Benefits

Payment Employee or annuitant continues Premium payments for Basic

of to pay full premiums and cannot end for annuitant and

Premiums cancel the premiums. employees who elect a full

VSF may agree to reimburse the

employee/annuitant directly for For employees who elect

premiums paid partial Living Benefits,

Living Benefit. 

premiums are prorated

depending on the amount of

Basic remaining.
ORIGINALLY ISSUED AS BENEFITS ADMINISTRATION LETTER 95-

216 ON MAY 4, 1995. (MODIFIED TO REFLECT UPDATED

INFORMATION.)

SUBJECT: Federal Employees' Group Life Insurance: Living Benefits

______________________________________________________________________________

GENERAL INFORMATION

________________________________________________

 What Are Living Living Benefits, also known as accelerated benefits in the

 Benefits? private sector, are life insurance benefits paid to an

individual while he/she is still living, rather than paid to a

beneficiary or survivor upon the insured individual's

death. This benefit was added to the Federal Employees'

Group Life Insurance (FEGLI) Program by Public Law

103-409, the FEGLI Living Benefits Act.

________________________________________________

 When Do Living Living Benefits under the FEGLI Program become

 Benefits Go effective on July 25, 1995.

 into Effect?

________________________________________________

 How Is This Living Benefits payments come from the Life Insurance

 Different from Fund (part of the U.S. Treasury). Viatical settlement

 Assigning FEGLI companies are private sector businesses not connected

 Coverage to a with the Federal Government.

 Viatical

 Settlement The amount of insurance available and the requirements

 Company? for receiving a Living Benefits payment are set forth in

Federal law. Viatical settlement companies set their own

requirements and payment amounts.

______________________________________________________________________________

SPECIFIC INFORMATION

________________________________________________

 Who Can Elect Any employee, annuitant, or compensationer covered

 Living Benefits? under the FEGLI Program, who has been diagnosed as

terminally ill with a life expectancy of nine months or

less, may elect a Living Benefit.

________________________________________________

 How Much Only Basic insurance is available for Living Benefits.
 Insurance Can Optional insurance cannot be paid as a Living Benefit.

 an Employee

 Elect? An employee may elect either a full Living Benefit, i.e.,

all of his/her Basic benefits, or a partial Living Benefit

(expressed as a multiple of $1,000). (Annuitants and

compensationers can elect only a full Living Benefit.)

________________________________________________

 How Many Times An employee can elect Living Benefits only once.

 Can an Employee

 Elect Living If an employee elects a full Living Benefit, he/she has no

 Benefits? more Basic insurance. A subsequent increase in salary

does not give the employee entitlement to additional Basic

insurance.

If an employee elects a partial Living Benefit, he/she

cannot later elect another Living Benefit from the

remaining Basic insurance. In addition, the amount of the

remaining Basic insurance will not change, even if there is

a subsequent change in salary.

Also, a Living Benefit payment cannot be retracted. If

the certifying doctor's medical prognosis is wrong, and

the employee lives longer than the expected nine months,

the employee would not have to repay the Living Benefit.

______________________________________________________________________________

PROCEDURES

________________________________________________

 How Does an 1) An employee who wishes to apply for Living Benefits

 Employee Apply must contact the Office of Federal Employees' Group

 for Living Life Insurance (OFEGLI) at 1-800-633-4542; OFEGLI

 Benefits? will begin accepting calls after July 10, 1995. OFEGLI

will send the individual an application form (FE-8, Claim

for Living Benefits).

Please note that agencies will not be sent a supply of FE-8

forms and will not be able to give them to employees.

2) OFEGLI will also send a calculation sheet, so

employees will be able to determine the amount of Basic

insurance available to them. This will take into account

the age multiplication factor for employees under age 45. 

(It will also take into account the post-65 reduction for

annuitants age 65 and over.) The benefits available will

be reduced by an amount representing interest lost to the

Life Insurance Fund because of the early payment of

benefits.
3) The employee completes Part A of the form, and

his/her doctor completes Part B. The employee then

sends the form back to OFEGLI.

4a) If OFEGLI approves the Living Benefit, OFEGLI

will send the employee a check, along with an

Explanation of Benefits (EOB). When the employee

cashes or deposits the check, the Living Benefits election

is complete. OFEGLI will then send an EOB to both the

agency personnel office and the agency payroll office.

4b) If OFEGLI does not approve the Living Benefit,

OFEGLI will notify both the individual and the employing

office. There are no appeal rights; however, the

individual may furnish additional medical evidence to

support the claim or may reapply if future circumstances

warrant.

________________________________________________

 What Does the When OFEGLI receives an employee's application for

 Agency Have Living Benefits, it will send or fax the agency an FE-8A,

 to Do? Agency Certification for FEGLI Living Benefits. The

agency must certify whether the employee is enrolled in

Basic insurance, whether the employee has assigned

his/her insurance, and the amount of the employee's

current annual basic pay.

The FE-8A must have dual certification, i.e., it must be

certified by both a personnel official and a payroll

official. Make sure that the addresses of the personnel

and payroll offices are complete, since OFEGLI will use

these addresses to send the agency a copy of the EOB.

It is critical that this certification be completed and

returned to OFEGLI promptly. You should fax the

completed certification to OFEGLI on 212-578-4491, and

then mail the original to OFEGLI.

________________________________________________

 Post-election If an employee elects a partial Living Benefit, OFEGLI

 BIA will notify the agency of the amount of the employee's

remaining Basic Insurance Amount (BIA) on the EOB. 

This post-election BIA never changes, even if the

employee's salary changes. The age factor used in

computing benefits payable upon the death of an employee

with a post-election BIA also will not change.

The post-election BIA also does not change if the

employee subsequently retires and is eligible to continue
insurance as an annuitant. He/she will not have a choice

of post-65 reductions. Unless he/she elects to terminate

coverage, the full post-election BIA will remain in effect,

and withholdings will be at the no-reduction level. 

He/she will not be eligible to change the no-reduction to a

75% reduction at a later date.

An employee who elects a partial Living Benefit retains

Accidental Death and Dismemberment (AD&D) benefits

on Basic insurance in the same amount as the post-election

BIA.

(An employee who elects a full Living Benefit loses

AD&D on Basic insurance, since there is no Basic

insurance left.)

________________________________________________

 Changes in If an employee elects a full Living Benefit, withholdings

 Withholdings and and contributions for Basic insurance stop. If an 

 Contributions employee elects a partial Living Benefit, withholdings and

contributions for Basic insurance are based on the postelection BIA.

Changes in withholdings and contributions are effective at

the end of the pay period in which the Living Benefit

election is effective, i.e., the end of the pay period in

which the payment is cashed or deposited. (OFEGLI will

notify you of the date the payment is cashed or deposited.)

________________________________________________

 What Goes on When the agency receives notification of a Living

 the SF 50? Benefits election - i.e., the EOB - the personnel office

must produce an SF 50. There will be no changes to the

codes used in box 27 on this form. The code for FEGLI

will remain the same as it was before the Living Benefits

election.

In the "Remarks" section, you should state:

Elected full Living Benefits on ______.

Basic coverage now equals zero.

 or

Elected partial Living Benefits on ______.

Post-election BIA is ______.

Must elect "No reduction" at retirement.

In addition, you should state in the "Remarks" section
what Optional insurance (if any) the employee has,

including the number of multiples of Option B, if

applicable.

______________________________________________________________________________

MISCELLANEOUS

________________________________________________

 Optional A Living Benefit election has no effect on an individual's

 Insurance Optional insurance. All Optional insurance will remain in

place, and withholdings for Optional insurance will

continue unchanged.

________________________________________________

 Designations A Living Benefit election has no effect on an individual's

 of Beneficiary designation of beneficiary. Option A benefits, Option B

benefits, and any remaining Basic benefit for employees

who have elected a partial Living Benefit will be paid to

an individual's designated beneficiary or, in the absence

of a designation, according to the statutory order of

precedence.

If, however, an individual who has specifically designated

Basic insurance to a beneficiary elects a full Living

Benefit, that beneficiary will not receive any money as a

Basic benefit upon the individual's death. If this

individual elects a partial Living Benefit, the beneficiary

will receive only the remaining Basic benefit. We

therefore recommend that an insured individual electing a

Living Benefit review his/her designation of beneficiary.

________________________________________________

 Assignment If an individual has assigned his/her insurance, he/she

cannot elect a Living Benefit; nor can the assignee elect a

Living Benefit. However, if an individual elects a Living

Benefit, he/she can subsequently assign any remaining

insurance (Basic or Optional).

______________________________________________________________________________
ORIGINALLY ISSUED AS BENEFITS ADMINISTRATION LETTER 95-

221 ON OCTOBER 10, 1995. (MODIFIED TO REFLECT UPDATED

INFORMATION.)

SUBJECT: Assignment of FEGLI Coverage

______________________________________________________________________________

I. OVERVIEW

______________________________________________________________________________

A. Purpose This letter announces a change in the Federal Employees'

Group Life Insurance (FEGLI) law that allows Federal

employees, annuitants, and compensationers to assign

ownership of their life insurance coverage.

________________________________________________

B. Background Section 4 of Public Law 103-336 allows Federal

employees, annuitants, and compensationers to make an

irrevocable assignment of the ownership of their life

insurance coverage. Regulations clarify that the right to

assign ownership of life insurance coverage applies only

to Basic insurance, Option A--Standard, and Option B--

Additional FEGLI coverages. The law was enacted on

October 3, 1994. Previously, only Federal judges could

assign FEGLI coverage.

______________________________________________________________________________

II. WHAT IS AN ASSIGNMENT?

______________________________________________________________________________

A. Description An assignment is an irrevocable transfer of ownership of

the employee's FEGLI coverage (except dismemberment

insurance and Option C--Family) to another individual,

corporation, or trustee. The employee continues to be the

insured person.

________________________________________________

B. Effects of An assignment is irrevocable. After making an

assignment assignment, the employee, as long as he or she is

continuously insured in the FEGLI Program, cannot

cancel the assignment. Further, any designation of

beneficiary on file at the time of the assignment is

immediately void.

________________________________________________
C. Assignment is The law is permissive, not mandatory. Thus, employing

voluntary offices may not force an insured employee to make an

assignment.

________________________________________________

D. Rights of the After making an assignment, it is the employee's right

employee after to:

making an

assignment ! Continue Option C--Family coverage (if previously

elected).

C Elect more insurance (for example, during an open

enrollment period, by furnishing proof of insurability

or upon marriage, divorce, birth of a child, etc.).

NOTE: All of the new insurance (except Option C--

Family) is automatically subject to the existing

assignment.

C Elect a reduction schedule for Basic insurance that is

less than the standard 75 percent reduction at the time

of retirement. However, if the retiring employee

elects a lesser reduction (no reduction or 50 percent

reduction), he or she may not later cancel the

election.

After making the assignment, the employee may not:

C Cancel or reduce the insurance.

C Designate a beneficiary.

C Convert the insurance to a private policy when it

terminates.

C Elect a Living Benefit.

________________________________________________

E. Rights of the The assignee has the right to:

assignee

C Cancel the insurance coverage.

C Cancel a retired employee's election of a lesser

reduction (50 percent or no reduction) of Basic

insurance

C Designate and change beneficiaries.

C Convert to a private policy when the coverage
terminates (but not when the assignee voluntarily

cancels it).

C Reassign the insurance.

The assignee may not:

C Increase the amount of insurance during an open

season or as a result of any other event.

C Elect a Living Benefit.

C Make the original election of a reduction schedule for

Basic insurance when the employee retires.

________________________________________________

F. Assignment to An assignment may be made to more than one person,

more than one corporation, or trustee. If the assignment of the

individual insurance is to two or more persons, the employee must

specify percentage shares of the entire amount of

insurance, rather than dollar amounts or types of

insurance, to go to each assignee. The percentages must

total 100 percent. The employing office must reject a

form if the percentages do not total 100 percent.

Each assignee should designate his or her own

beneficiaries for his or her share of the insurance. 

However, all assignees must agree to most other actions

taken with the coverage, such as cancellation.

________________________________________________

G. Restrictions An employee who has previously elected a Living 

related to Benefit may assign the balance of his or her insurance.

assignments However, an employee who has assigned his or her

insurance may not elect a Living Benefit; nor may the

assignee elect a Living Benefit.

______________________________________________________________________________

III. BENEFITS OF AN ASSIGNMENT

______________________________________________________________________________

A. General Employees may find assignments useful in a number of

circumstances, such as described below.

________________________________________________

B. To comply with Employees may use assignments to comply with a court

a court order order for divorce that requires an employee to name a

former spouse as the beneficiary of his or her FEGLI

proceeds. Under the FEGLI law, designations of
beneficiary may be changed by the employee at any time;

whereas, an assignment is irrevocable. However, an

agency cannot force an employee to make an assignment,

even if a court order requires him or her to do so. It is

not the agency's responsibility to enforce a court order.

________________________________________________

C. For inheritance Employees may use assignments for inheritance tax

tax purposes purposes. An absolute assignment of an insured person's

interest in a group life insurance policy, made at least 3

years before his or her death, generally removes the

insurance proceeds from the insured person's estate. 

Current Federal estate tax law allows an unlimited marital

deduction for that portion of the gross estate passed to a

surviving spouse. Thus, there is no apparent immediate

tax advantage to assigning ownership of a life insurance

policy to a spouse. However, since State tax laws vary

and tax savings under Federal or State law can be

considerable if insurance proceeds are not subject to estate

taxes, it is important to consult with a competent estate

tax advisor.

NOTE 1: It is possible that assignment to a trust may not

exclude FEGLI benefits from the employee's estate. It is

also possible that, if the assignee dies first, the employee

could reacquire ownership of the life insurance coverage

through designation of beneficiary or inheritance. The

assignment form, RI 76-10, cautions the employee to

consult a tax attorney if he or she wants to make an

assignment to a trust or wants to avoid inheriting

ownership of the FEGLI coverage upon the death of the

assignee.

NOTE 2: The employing office assumes no responsibility

or obligation with respect to the validity, sufficiency, or

the consequences of an assignment under the Internal

Revenue Code. A determination as to whether the FEGLI

proceeds are included in the employee's gross estate must

ultimately be made by the Internal Revenue Service at the

time of the employee's death.

________________________________________________

D. To obtain cash Employees may use assignments to obtain cash before

before death death from a viatical settlement firm. Viatical settlement

is the sale (or assignment) of someone's life insurance in

exchange for cash. Generally, viatical settlement firms

accept assignment of life insurance from terminally ill

patients with defined life expectancies that vary among

firms, but are usually less stringent than the requirements
for Living Benefits.

NOTE: The FEGLI Living Benefits Act became effective

on July 25, 1995. Under this Act, Basic life insurance

can be paid as a Living Benefit to an employee, annuitant,

or compensationer who has 9 months or less to live. 

However, viatical settlement may still be a good choice

for terminally ill employees who have more than 9 months

to live, or those who wish to receive cash based on the

face value of their Basic insurance, Option A--Standard,

and Option B--Additional coverages. The FEGLI Living

Benefits apply only to Basic insurance, not the Optional

coverages.

________________________________________________

E. To pay off debts Employees may use assignments to pay off debts. 

Agencies cannot refuse to accept an assignment made to

satisfy indebtedness. However, agencies should remind

employees that an assignment is irrevocable and cannot be

canceled when the debt is paid. The assignment form, RI

76-10, contains a warning to this effect.

______________________________________________________________________________

IV. HOW TO MAKE AN ASSIGNMENT

______________________________________________________________________________

A. Assignment form Assignments are made on OPM Form RI 76-10,

Assignment of Federal Employees' Group Life Insurance. 

Agency headquarters have already ordered supplies of

these forms through OPM's rider system. Employing

offices may obtain supplies of the form from their agency

headquarters.

The January 1995 edition is the only edition that may be

used.

________________________________________________

B. Effective date of An assignment is effective on the date the properly

an assignment completed, signed, and witnessed assignment form is

received by the employing office.

________________________________________________

C. All insurance If an employee has more than one type of coverage--

must be assigned Basic insurance plus Option A--Standard, Option B--

Additional, and Option C--Family, for example--he or she

must assign all of the insurance except Option C--Family. 

An employee may not assign only a portion of the

coverage, but may assign the life insurance coverage to

more than one person.
An employee may not name contingent assignees in the

event the primary assignee predeceases him or her.

______________________________________________________________________________

V. WITHHOLDING AND CONTRIBUTIONS

______________________________________________________________________________

A. Payment of After making an assignment, the employee must continue

premiums after to pay the premiums. The assignee may not pay the

assignment premiums (except in certain circumstances when a FERS

retiree's annuity is too low to make the withholding.)

________________________________________________

B. Withholdings and After an assignment, insurance premiums continue to be

contributions withheld from salary, annuity, or compensation, as

applicable.

______________________________________________________________________________

VI. DESIGNATION OF BENEFICIARY

______________________________________________________________________________

A. Employee's An assignment automatically cancels the employee's

designations prior designations of beneficiary. However, the agency

must continue to retain the cancelled designations in the

OPF. Once an assignment is effective, an employee no

longer has the right to designate a beneficiary.

________________________________________________

B. Assignee's Each assignee may, as part of the assignment process,

designations designate a beneficiary or beneficiaries to receive

insurance proceeds upon the death of the employee and

may subsequently change the beneficiaries. If there is no

designation, the assignee is the beneficiary.

________________________________________________

C. Surviving A surviving beneficiary receives the designated amount

beneficiary of assigned insurance upon the death of the employee. 

Assignees may designate themselves the primary

beneficiaries and name some other person(s) as contingent

beneficiaries in the event that the assignee dies before the

employee.

Assigned insurance is paid to an assignee's estate if the

assignee predeceases the employee and--

C The assignee did not designate a beneficiary; or

C The assignee's designated beneficiary dies before the
employee.

______________________________________________________________________________

VII. EMPLOYING OFFICE RESPONSIBILITIES

______________________________________________________________________________

A. General Employing offices are responsible for advising employees

of the availability of, and uses for, an assignment of

FEGLI coverage.

Making decisions or recommendations for the employee is

not the employing office's responsibility and should be

avoided. Further, the employing office has no

responsibility or obligation with respect to the

consequences of an assignment.

________________________________________________

B. Policing An employee who assigns his or her FEGLI coverage

assignments may not make a subsequent assignment or designation of

beneficiary unless the assignee reassigns the insurance

back to the employee. Therefore, when an employing

office receives an assignment or designation of beneficiary

from an employee, it must ensure that the employee has

not already assigned his or her life insurance to someone

else.

The employing office may accomplish this by reviewing

the Official Personnel Folder (OPF) for every employee

who submits a designation or an assignment or by keeping

a log of all employees who make assignments.

If the employing office decides to keep a log of employees

who make assignments, it must check the log each time an

employee designates a beneficiary or makes an assignment

to ensure that the employee has not previously assigned

his or her life insurance to someone else. In addition,

when an agency reemploys a former Federal employee

after a break in service of less than 31 days the employing

office must check the employee's OPF to determine

whether there is an assignment. If so, the employee's

name must be added to the agency's log.

To assist the employing office, we have revised Standard

Form 2823, Designation of Beneficiary, to add a new

section asking the designator to check whether he or she is

completing the form as the employee or an assignee. 

Nevertheless, the employing office must verify in each

case whether there is a previous assignment by checking

the employee's OPF or its log of employees who have
made an assignment.

If the employing office finds that the employee has

previously assigned his or her life insurance to someone

else, the employing office must return the form to the

employee, explaining that he or she has previously made

an assignment and that only the assignee may reassign the

insurance or designate a beneficiary.

________________________________________________

C. Viatical When employees want to assign their life insurance to a

settlement firms viatical settlement firm, the firm will ask the employing

office to provide information about their FEGLI coverage. 

The employing office must have a release, signed by the

employee, before providing the information. See BAL

95-212 for detailed information about viatical settlements.

The employing office must file copies of the release and

the information disclosed to the viatical settlement firm in

the employee's OPF.

________________________________________________

D. Consulting tax Employing offices should always advise employees to

attorneys consult a tax attorney when they are considering assigning

their life insurance. This is particularly important if the

employee wants to make an assignment to a trust or wants

to avoid inheriting the FEGLI coverage upon the death of

the assignee. The attorney has specific information about

tax laws and IRS regulations to make a determination

about the tax effect of an assignment. The employee

should also consider obtaining a ruling from the IRS.

________________________________________________

E. Notifying the When an assignment is made, the employing office must

assignee notify the assignee that the employee has assigned

ownership of his or her life insurance to the assignee and

provide a copy of the FEGLI Booklet, RI 76-21, which

explains the FEGLI Program, and a blank designation

form (SF 2823). The notice must include the types of

insurance the employee assigned (Basic, Option A--

Standard, Option B--Additional) including the number of

multiples of pay under Option B--Additional. The notice

must also give the percentage of the total insurance that

the assignee now owns. (The percentage is 100 percent

unless there are multiple assignees.) A sample notice is

attached.

________________________________________________

F. When insurance At the time the insurance terminates, other than by
terminates voluntary cancellation, the employing office must send SF

2819, Notice of Conversion Privilege, to the assignees to

inform them of their conversion rights. Employing

offices must also complete Standard Form 2821, Agency

Certification of Insurance Status, and give it to the

assignee, together with a copy of the assignment form (RI

76-10) by which the employee had transferred ownership

of the life insurance coverage to the assignees. See

section S5-3 of the FEGLI Handbook for Personnel and

Payroll Offices for additional information about SF 2819

and SF 2821. If there are multiple assignees, do not

complete multiple SF 2821's. Instead, complete only one

SF 2821 and make photocopies for the additional

assignees.

________________________________________________

G. When an employee Upon the death of the employee, the employing office

dies must send Form FE 6, Claim for Death Benefits, to each

assignee at the last known address. See Subchapter S10

of the FEGLI Handbook for Personnel and Payroll

Offices for additional information about procedures

required at an employee's death.

________________________________________________

H. When an employee When the employee leaves the agency by separation,

leaves the agency retirement, transfer to another agency, or for any other

reason, (when the Nature of Action Code begins with a 3)

cite on the separation Standard Form 50 Remark B69: 

Employee has assigned ownership of life insurance

coverage. Assignment terminates 31 days after the

separation date unless employee is entitled to continued

coverage or resumes coverage before that date.

________________________________________________

I. Unacceptable An insured person's assignment is unacceptable if--

assignments

C The insured person previously assigned his or her life

insurance coverage.

C The assignment form has not been properly

witnessed.

C The assignment form contains erasures or alterations.

C In the case of an assignment to two or more persons,

the shares are not expressed in percentages (dollar

amounts are not acceptable).

If the assignment is unacceptable, write VOID across the
front of the form and return it to the insured person with

an explanation of why the assignment is unacceptable.

______________________________________________________________________________

VII. ASSIGNEE'S RESPONSIBILITIES

______________________________________________________________________________

A. Current address Each assignee is responsible for keeping the employee's

personnel office aware of his or her current address. 

Employing offices must attach the assignee's change of

address notice to the assignment form in the employee's

OPF.

________________________________________________

B. Designation of We recommend that all assignees complete a designation

beneficiary of beneficiary, even though they want to be the

beneficiary, in order to designate a contingent beneficiary. 

The contingent beneficiary is the person who would

receive payment if the assignee dies before the employee.

If they do not designate a contingent beneficiary, the life

insurance is payable to the deceased assignee's estate. 

There may be problems in reopening the assignee's estate

after the employee dies to determine who is entitled to the

insurance payment. By naming a contingent beneficiary,

the assignee can simplify payment of the life insurance.

______________________________________________________________________________

IX. RETIREES AND COMPENSATIONERS

______________________________________________________________________________

A. Transferring When an employee retires or becomes a compensationer

assignments under circumstances that would allow continued FEGLI

coverage, the assignment continues in force if the assignee

does not choose to convert the insurance. The assignment

form must be transferred to OPM with the rest of the

FEGLI documents. See Subchapters S6 and S7 of the

FEGLI Handbook for Personnel and Payroll Offices for

procedures for transferring the life insurance to OPM

when an employee retires or becomes insured as a

compensationer.

________________________________________________

B. Assignments by Retirees and compensationers may assign their life

retirees and insurance under the same conditions as employees. OPM

compensationers serves as the employing office for retirees in all retirement

systems for Federal employees and for compensationers

whose life insurance has been transferred to OPM. (For

compensationers, the employing agency continues to
maintain the life insurance coverage through the first 12

months the employee is on compensation. The employing

agency then transfers the coverage to OPM if the

employee is eligible to continue it as a compensationer.)

________________________________________________

C. Conversion versus When there are multiple assignees, some assignees may

continuation prefer to let their share continue when the insured

employee becomes a retiree or compensationer. Others

may prefer to convert to a private policy. Information

about conversion is given in section X of this letter. 

For continued coverage, the amount of each type of

continued insurance is determined by the total percentage

of the shares of the assignees who choose continued

coverage. For example, if two assignees, each having a

25 percent share in the ownership of the total insurance

amount consisting of Basic insurance and Option A--

Standard, choose to continue coverage while the other

assignees choose to convert, 50 percent of the value of the

Basic insurance and 50 percent of the value of the Option

A--Standard continues. Although the assignees own a

share of the total value of the insurance, it is necessary to

distinguish between the types of insurance in order to

apply premiums and reduction factors during retirement.

______________________________________________________________________________

X. CONVERSION

______________________________________________________________________________

A. Termination Insurance terminates when the assignee cancels the

coverage, when the employee separates from service, and

when other terminating events occur. See FEGLI

Handbook subchapter S5 for a full explanation of when

coverage terminates.

________________________________________________

B. Conversion When an employee's insurance terminates other than by

voluntary cancellation, an assignee has the right to convert

all or a portion of the life insurance to an individual

policy on the employee.

If the insurance is assigned to more than one assignee,

each assignee has the right to convert all or part of his or

her share of the insurance. Any assignee who does not

convert loses all interest in the insurance unless the

insured person is entitled to continue coverage as a retiree

or compensationer (see section IX).

________________________________________________
C. Conversion when When multiple assignees have been named and they wish

there are to convert the assigned insurance to individual policies

multiple on the employee, the maximum amount of insurance each

assignees assignee may convert is the dollar amount of the

assignee's share of the total insurance. If the amount is

not a multiple of $1,000, it is rounded up to the next

thousand dollar amount.

________________________________________________

D. Rates for Rates for converted life insurance are based on the

converted life employee's attained age and class of risk at the time the

insurance conversion policy is issued.

______________________________________________________________________________

XI. TERMINATION OF ASSIGNMENT

______________________________________________________________________________

A. Termination of An assignment terminates 31 days after the life insurance

assignment terminates, unless the insured person is reemployed during

the 31-day period in a position in which the insurance

resumes. That date coincides with the expiration of the

31-day temporary extension of coverage and the

cancellation of designations of beneficiary. Once

terminated, the assignment does not resume if the person

is later reemployed in a position in which he or she again

has FEGLI coverage. Instead, the employee must make a

new assignment if he or she wants someone else to have

ownership of the life insurance.

________________________________________________

B. When assignee When an assignee cancels the life insurance, there is no

cancels life 31-day temporary extension of coverage. The

insurance assignment terminates permanently at the same time the

life insurance terminates.

______________________________________________________________________________

Attachment
Sample letter for notifying assignees of the assignment

Jane Doe

123 Main Street

Anytown, US 00000-0000

Dear Ms. Doe:

This is to notify you that (name of employee) has assigned (percent) of ownership of his/her

coverage in the Federal Employees' Group Life Insurance (FEGLI) Program to you. (Name of

employee) has Basic insurance plus (Option A--Standard and Option B--Additional at (times)

his/her annual pay.) The enclosed booklet explains the features of the different types of

insurance.

You are the beneficiary of the life insurance coverage, and you will be entitled to the benefits

upon the death of (name of employee). However, we urge you to designate a contingent

beneficiary to receive the benefits in the event that you die before (name of employee). To do

this, complete the attached Designation of Beneficiary form and return it to (name and address

of employing office). To designate a contingent beneficiary, name yourself as primary

beneficiary and another person to receive benefits in case you die before the insured person. 

See example 3 on the form.

It is important that you tell us when your address changes, so that we can notify you if events

occur that affect the life insurance coverage that has been assigned to you. When you write us

to tell us about a change of address, be sure to include the name and social security number of

the insured employee.

Sincerely,
ORIGINALLY ISSUED AS INSURANCE OFFICERS INFORMATION

BULLETIN NO. 261 ON AUGUST 6, 1992. (MODIFIED TO REFLECT

UPDATED INFORMATION.)

It has come to our attention that Federal agencies and carriers in the Federal Employees Health

Benefits (FEHB) Program are treating the FEHB coverage of foster children (including

grandchildren) inconsistently. Consequently, we have recently reviewed our policy with regard

to health benefits coverage for foster children, in general, and foster children who are also

grandchildren, in particular.

In accordance with law and regulation, a grandchild may be covered under an employee's FEHB

enrollment if the child meets the definition of a foster child. That is, he or she must be financially

dependent on the employee, must be living with the employee in a regular parent-child

relationship, and the employee must expect to raise the child to adulthood.

We have determined that the parent-child relationship requirement, whether or not a natural parent

lives in the home, is satisfied if there is evidence that the child lives with and is financially

dependent on the employee. Therefore, a court order for custody is not required if the natural

parent lives in the home with the employee. The employee must provide evidence that the child

is being claimed as a dependent (for example, on the employee's tax return or for other purposes

as specified in Subchapter S11-2 of The FEHB Handbook for Personnel and Payroll Offices) and

must also provide a written statement that he or she expects to raise the child to adulthood. (We

have attached a pattern statement which may be reproduced and used by agencies for this purpose.

Agencies must file the original statement in the employee's Official Personnel Folder and give a

copy to the employee.)

The natural parent living in the home may be the employee's natural child, adopted child,

stepchild, or foster child; so long as he or she qualifies as a family member under the employee's

FEHB family enrollment. However, because a former spouse's family enrollment can cover only

the former spouse and any unmarried dependent natural or adopted children of both the former

spouse and the employee, former employee or annuitant, a former spouse's foster child may not

be covered under his or her family enrollment.

The date that the child becomes an eligible family member is prospective and is deemed to be the

first day of the pay period in which the employing office receives all properly completed

documents necessary to establish eligibility of the child as a foster child. Nevertheless, for

newborns whose birth is covered under the employee's FEHB plan as a birth expense of the

natural mother, the effective date may be, at the employee's discretion, the first day of the pay

period in which the child is born.

Coverage will continue until the foster child/grandchild marries, reaches age 22, becomes capable

of self-support if previously deemed otherwise, or is no longer living with or financially dependent

on the employee. If the child later leaves the employee's home to live with a natural parent, the

child may not again be covered as a foster child of the employee unless the natural parent

subsequently becomes unable to care for the child (for example, through death, incapacitation, or

incarceration, but not solely for reason of unemployment); or the employee obtains a court order

for custody that takes parental responsibility from the natural parent and gives it to the employee.
In clarifying our foster child policy with an agency, we were asked about effective dates and

notice requirements. Coverage for children determined to be foster children under the guidance

contained in this Bulletin is prospective only. There is no requirement that agencies attempt to

notify employees whose grandchildren may have been denied FEHB coverage because of the

absence of a court order conveying foster child status in the past.

Attachment
STATEMENT OF FOSTER CHILD STATUS

This is to certify that I have been informed of the following requirements for coverage of a foster

child in the Federal Employees Health Benefits Program:

! The child must be unmarried

! The child must live with the employee in a regular parent-child relationship

! The employee must contribute regular and substantial support for the child

! The employee must intend to raise the child into adulthood

I have provided my employing agency proof of my regular and substantial support for (Name of

Child). The child is unmarried and lives with me in a regular parent-child relationship. To the

best of my knowledge and belief, I intend to raise (Name of child) into adulthood.

I will immediately notify both my employing office and health benefits carrier if the child marries,

moves out of my home, or ceases to be financially dependent on me.

____________________________________________

(Signature of employee) (Date)

____________________________________________

(Social Security Number)