Survivor benefits: Do you have enough coverage?

Broaching the subject of personal finances can be a delicate task, but there is no time like the present to make sure your family is appropriately covered after your death.

Most feds are not fully aware of the survivor benefits that are payable under the Federal Employees Retirement System (FERS), but they should be. This information is useful and is a good place to start when it comes to evaluating whether you need additional life insurance.

Under the FERS, death benefits are payable to your survivors if you die while still employed. The basic employee death benefit payable to a surviving spouse is a lump sum payment, plus 50 percent of your final salary or the average of your highest three salaries, if that is higher. The lump sum you will receive is calculated based on the Dec. 1, 1987, figure of $15,000 and factoring in the annual Civil Service Retirement System cost-of-living adjustments that have occurred since then.

Your surviving spouse must elect whether to receive the basic employee death benefit in one payment or 36 monthly installments. If you had 10 or more years of service before your death, your spouse also receives an annuity equaling 50 percent of the accrued basic retirement benefit computed under the general FERS formula. In addition to spousal benefits, eligible children receive a set dollar amount determined by formula.

Feds are also covered by basic Federal Employees Group Life Insurance (FEGLI), which provides coverage for employees' spouses and eligible dependent children and is essentially equal to one year's pay. Both FEGLI and FERS pay benefits after you die, but FERS is not life insurance per se.

Generally, the rates for additional insurance under FEGLI are not that attractive until you are older than 50. If you are in good health, you can often do better purchasing term insurance from a private insurance company, such as Worldwide Assurance for Employees of Public Agencies (www.waepa.org). However, if you are not in tiptop shape, FEGLI is a very good deal because your health is not considered during open season, when federal employees are allowed to change their life insurance coverage.

The key is to obtain adequate coverage at a reasonable price. For starters, you might want to contact a life insurance salesperson. Ask your friends if they have one they would recommend. Then, do some comparison shopping. Check out WAEPA's rates and then search sites on the Internet. There are loads of sites that will dish up a menu of term life insurance quotes (see list below).

However, buyers beware, said Daniel Roe, certified financial planner and a principal at Budros &Ruhlin Inc. in Columbus, Ohio (droe@budrosandruhlin.com).

"Consumers should not be easily baited to apply for the cheapest quotes for term insurance policies on the Net," Roe said. "Most of these policies apply only to those who can qualify for a 'super preferred' underwriting classification. This often means that an applicant, though himself healthy enough to participate in a triathlon, cannot have had a parent that died of a number of illnesses [heart attack, cancer] before age 60 or 70."

Although it's not impossible to qualify for these low rates, it's not easy for most people. Roe said you should not be surprised if the policy bought on the Web is actually issued at a higher rate than posted.

"Do not underestimate the value of a knowledgeable life insurance agent to guide you through the often complex process of getting coverage," he said. "The prices are often the same as those found on the Net, and if there are any complications in the underwriting process, a professional agent will be able to add value and earn their commission through their assistance."

You should make sure the agent understands that you have determined that you want term insurance and have no interest in reviewing other types of more expensive coverage, Roe added. Roe, who is a fee-only financial planner and does not sell insurance, said he has seen many instances where a professional insurance agent was instrumental in finding the right company to underwrite a client's life insurance.

Some leading Internet insurance sites:

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