There are a number of good reasons to purchase life insurance coverage. While life insurance is primarily used to ensure the long-term financial stability of a spouse or children, it can also be used to cover final expenses, for mortgage/debt protection, creating a legacy asset for beneficiaries, among other reasons. To this end, federal employees look to benefits such as their Federal Employee Group Life Insurance (FEGLI), Thrift Savings Plan (TSP), and private policies on the open market. What many feds do not realize though, is that there is another substantial death benefit, provided by the government, available at no cost whatsoever to qualifying individuals.
Basic Employee Death Benefit
The Basic Employee Death Benefit (BEDB) is an entirely free benefit paid out by the Office of Personnel Management (OPM) to the spouses of federal employees. To qualify for this policy, there are two requirements:
- 18+ months of civilian service
- 9+ months of marriage
Two exceptions allow for even fewer than 9 months of being married to qualify: if the death was accidental, or if a child was born of the marriage.
To calculate the value of the BEDB, this formula is used:
50% of the employee’s final salary + $43,801*
*$43,801 is the COLA adjusted number for 2026. This number increases over time, in line with the annual CSRS COLA.
To see what this looks like in practice, let’s calculate the face value of this benefit by taking a hypothetical employee whose salary was $100,000 at the time of their passing:
[50% x $100,000] + $43,801 = $93,801
The Basic Employee Death Benefit is very similar to life insurance but it is not technically classified as life insurance. The main difference is that this benefit is taxable to the beneficiary, whereas life insurance proceeds are generally tax-free. Another key difference is that this benefit can only be paid to the spouse or former spouse of the deceased federal employee.
Claiming The BEDB
There are two different ways to collect the proceeds of Basic Employee Death Benefit:
- A single lump sum payment
- 36 monthly installment payments
The total amount paid out in installments ends up being slightly higher than the lump sum option because OPM applies interest to the payments, in order to account for inflation. If installment payments are initially selected, the beneficiary is allowed to request OPM stop sending the monthly installments and instead pay out the remaining balance owed as one final lump sum.
Any benefits paid directly to the beneficiary are subject to a mandatory 20% federal tax withholding. There is, however, a one-time $5,000 tax exemption applied to any benefit collected as a lump sum.
It is also possible to have the payout rolled directly into an IRA, TSP, or other eligible retirement plan. This rollover option is a non-taxable event, allowing the beneficiary to forgo having to make the automatic 20% tax withholding, delaying the taxation until retirement like any other type of contribution.
The proper choice of how to collect this benefit may depend largely on the age of the beneficiary and their financial needs at the time. It is strongly recommended to consult with a licensed financial advisor to determine the best path forward and maximize this death benefit.
The Bigger Picture
When evaluating insurance needs, there are many things for a federal employee to consider. How much do they have in FEGLI coverage? Do they have one or more private life insurance policies? How much do they have saved in the TSP? What are their other assets? How much do they have in debt? Is their spouse working? How old are their children?
Due to the Basic Employee Death Benefit being completely free and having automatic enrollment, most feds remain unaware of its existence. And while it does have its limitations, namely that it cannot be carried into retirement, the BEDB is still an important piece of the estate planning puzzle. It should be factored in before choosing to spend additional money on coverage elsewhere.
More often than not when I am working with my clients to review their overall situation, I learn that they had never been made aware that the BEDB was available to them. Sometimes this means we are able to reduce or drop their coverage from other sources, which frees up cashflow to be redirected towards more impactful things, such as paying down debts, adding more to savings, or increasing TSP contributions.
The BEDB is just one piece of your federal retirement puzzle. Partnering with a federal retirement specialist at Dugan Brown makes it easier to integrate every benefit into a comprehensive plan. Schedule your free consultation today.
