FEGLI Living Benefits: Accelerated Payout for Terminal Illness

Life Insurance You Can Use While Alive

Most people think of life insurance as a death benefit — money paid to survivors after you're gone. FEGLI's Living Benefit provision turns that assumption sideways: if you have a terminal medical condition with a life expectancy of nine months or less, you can elect to receive a lump-sum payment of your Basic coverage while you're still alive.

This isn't a loan against the policy. It's an irrevocable election that pays out a portion of your Basic Insurance Amount directly to you, reduces your remaining death benefit accordingly, and changes your post-65 reduction options going forward.

Who Qualifies

The Living Benefit is available to any federal employee or retiree who:

• Is currently enrolled in FEGLI Basic coverage
• Has been diagnosed with a medical condition expected to result in death within nine months
• Provides medical certification from a physician documenting the terminal diagnosis

The certification must come from a licensed physician — the form asks for the physician's assessment of life expectancy and the basis for that prognosis. The documentation must be complete.

How Much You Can Receive

You can elect to receive the full Basic Insurance Amount (BIA) or a reduced amount in multiples of $1,000 (with a minimum of $5,000). The payment is based on your BIA at the time of election, adjusted for any post-65 reductions that have already occurred.

The lump sum isn't the full face value. OFEGLI applies an actuarial reduction to account for early payment — essentially discounting the benefit for the time value of money. The reduction is calculated based on published actuarial factors.

If you elect a partial Living Benefit (less than 100% of your BIA), the remaining Basic coverage stays in force. Your beneficiaries receive the unreduced portion when you die.

The Application Process

Living Benefits are processed through the Office of Federal Employees' Group Life Insurance (OFEGLI), not through OPM's retirement services. The application form is FE-8 (Claim for Living Benefits), which must be requested directly from OFEGLI by calling 1-800-633-4542.

The form requires:

• Your personal and employment information
• The physician's certification of the terminal condition
• Your elected payout amount
• Beneficiary information for any remaining coverage

OFEGLI processes Living Benefit claims and pays the lump sum. Ask OFEGLI about current processing timing when you request Form FE-8.

What Changes After You Elect

The Living Benefit election triggers several permanent changes to your FEGLI coverage:

Your death benefit is reduced. Whatever you received as a Living Benefit is subtracted from the amount your beneficiaries receive at death. If you took the full BIA, the Basic death benefit drops to zero. Any other applicable provision follows its own FEGLI rules.

Your reduction election changes. If you elect a partial Living Benefit, you must maintain the No Reduction election on your remaining Basic coverage — you cannot elect 75% or 50% Reduction on the portion you kept. This means ongoing premiums for life on whatever Basic coverage remains.

Your Optional coverages depend on the election. The Living Benefit applies only to Basic coverage. If you elect a full Living Benefit, Options A, B, and C terminate immediately upon payment; with a partial Living Benefit, optional coverages continue while the remaining Basic coverage stays in force.

Tax Treatment

Living Benefit payments under FEGLI are treated as accelerated death benefits under IRC Section 101(g), which means they are generally excluded from gross income — the same tax treatment as a regular death benefit. However, the tax treatment can depend on individual circumstances, particularly if the benefit is assigned or if there are estate planning complications.

When the Living Benefit Makes Sense

The Living Benefit is designed for terminal situations where immediate access to funds matters — covering medical expenses, settling affairs, or providing for family needs during the terminal period rather than after death.

It's not a financial planning tool in the ordinary sense. You're trading future death benefit dollars for present cash, at a discount. For someone with a nine-month prognosis, the time value calculation is clear — money now has significantly more utility than money paid to your estate later.

For the full context on how the Living Benefit interacts with your other FEGLI elections, beneficiary designations, and retirement income planning, the FEGLI Retirement Decision Guide covers this provision alongside every other coverage decision point.

See more United States guides →