What Happens to Your FEGLI Life Insurance When You Die? A Federal Employee’s Complete Guide

When a federal employee or retiree passes away, navigating benefits can feel overwhelming for surviving family members. Understanding how Federal Employees' Group Life Insurance (FEGLI) pays out—and who receives the money—is critical for protecting your loved ones and avoiding costly administrative delays.

The single most important rule regarding FEGLI is this: FEGLI proceeds are paid out strictly according to federal law, NOT your personal will or trust.

Below is the complete breakdown of how FEGLI claims are processed, how payouts are calculated, tax implications, and an interactive tool to estimate your family's death benefit.

Who Receives Your FEGLI Payout? (The Statutory Order of Precedence)

When you die, the Office of Federal Employees' Group Life Insurance (OFEGLI)—a unit of MetLife that administers the program for OPM—determines beneficiaries based on a strict legal hierarchy.

1. Valid Beneficiary Form (SF 2823)

If you submitted a valid SF 2823 (Designation of Beneficiary) form to your agency HR (if active) or OPM (if retired), OFEGLI pays 100% of the benefit directly to the designated individuals or entities listed.

CRITICAL WARNING: Federal law (5 U.S.C. § 8705) strictly mandates that the SF 2823 on file takes precedence over everything else. A last will and testament, living trust, divorce decree, or verbal agreement will not override an outdated SF 2823. If you listed an ex-spouse 20 years ago and never updated your form, OFEGLI is legally required to pay the ex-spouse.

2. Standard Order of Precedence (If No SF 2823 Is on File)

If you never completed an SF 2823—or if all named beneficiaries died before you—OFEGLI distributes your benefit following the federal statutory order of precedence:

How FEGLI Death Benefits Are Calculated

The total payout your family receives depends on the specific FEGLI options you elected during your federal career:

Basic FEGLI Coverage

For active employees, Basic FEGLI equals your annual basic pay rounded up to the next $1,000, plus $2,000:

• Extra Benefit for Younger Employees: If you die while actively employed and under age 45, your Basic benefit is multiplied by an Extra Benefit factor—up to $2\times$ (double) your Basic benefit if you are age 35 or younger, reducing by 10% each year until age 45.

Optional Coverage Parts

• Option A (Standard): Pays a flat $10,000 death benefit.

• Option B (Additional): Pays $1\times$ to $5\times$ your annual basic pay (rounded up to the next $1,000$).

• Option C (Family): Option C covers your spouse and eligible children during your life. If you die, Option C terminates and pays nothing. (Option C only pays you if a covered family member dies first).

Impact of Retirement & Post-65 Reductions

If you are retired, your payout depends on the reduction elections you made at retirement (e.g., 75% Reduction, 50% Reduction, or No Reduction). Under the standard 75% reduction, your Basic coverage declines by 2% per month starting at age 65 until it levels off at 25% of its original value.

Step-by-Step: How Beneficiaries File a FEGLI Claim

1. Report the Death:

   • Active Employees: Family members should immediately contact the employee's agency Human Resources or Benefits office.

   • Retirees: Contact the OPM Retirement Services Office (1-888-767-6738 or online via the OPM survivor reporting portal).

2. Obtain Form FE-6: OPM or agency HR will send the beneficiary Form FE-6 (Claim for Death Benefits). Each beneficiary listed must complete their own copy of Form FE-6.

3. Submit Required Documents: Send the signed Form FE-6 along with a certified official death certificate directly to OFEGLI.

4. Select Payment Method:

   • Payouts under $10,000: Paid via direct deposit or physical check.

   • Payouts of $10,000 or more: Paid via direct deposit or a MetLife Total Control Account (TCA)—an interest-bearing money market draft account with full check-writing privileges.

Are FEGLI Death Benefits Taxable?

• Federal & State Income Tax: No. FEGLI death benefit proceeds paid to a beneficiary are 100% exempt from federal and state income tax.

• Interest Accrued: Any interest earned on the death benefit between the date of death and the date of payout is subject to ordinary income tax.

• Estate Taxes: FEGLI proceeds are included in the deceased employee's gross estate for federal estate tax evaluation. However, unless the estate exceeds federal estate tax exemption limits, no estate tax will be owed.

Interactive FEGLI Death Benefit Estimator

Use this custom tool to estimate your total FEGLI payout for your beneficiaries.

3 Fatal FEGLI Beneficiary Mistakes to Avoid

1. Relying on an Outdated SF 2823: If you remarry, have children, or get divorced, update your SF 2823 immediately. Divorce does not automatically revoke a FEGLI beneficiary designation under federal law.

2. Naming Minor Children Directly: OFEGLI cannot pay cash benefits directly to minor children under age 18. The funds will be frozen until a legal guardian is appointed by a probate court—causing months of expensive legal delays. Instead, name a UTMA/UGMA custodian or a revocable living trust for minor beneficiaries.

3. Failing to Store SF 2823 Records: Ensure your family knows where your copy of SF 2823 is located, along with your official agency HR or OPM contact information.