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FedEx Life Insurance Conversion at Retirement

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FedEx Life Insurance Conversion at Retirement

Old 09-25-2012, 10:38 AM
  #1  
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Default FedEx Life Insurance Conversion at Retirement

As some of you have learned, I’ve recently left my LTD status for retirement. Good you say. Me too. The process of retirement is not so much a complicated one, as a lengthy one. One filled with lots of phone calls to various people and departments, to make sure that all goes well, and that all your ducks are in the proverbial row, so that you can start to receive your pension checks and other “retirement benefits” in a timely manner.

The most complicated issue for me, was whether to elect a Straight Life Annuity (SLA), which would have maximized my total monthly paycheck, or to have selected one of the joint surviving spousal options, either the 50%, the 75%, or the 100% option. The SLA pays the most, but if you die, your spouse gets nothing, and in fact, your spouse must sign a notarized document, acknowledging the fact that they understand that you are selecting the SLA.

Selecting any of the surviving spouse options would have lowered my monthly check, but if I were to die before my wife, she would get 50%, 75% or 100% of my monthly check, for the rest of her life, depending on what option I had selected. Whatever option you select, is permanent, and is non-changeable, so a good deal of thought should go into your decision, based on your age, health, financial situation, how much you love your spouse, etc, etc.

With the above in mind, I started to look at life insurance as an alternative to selecting any of the surviving spousal options, with the idea being to provide my wife, in case of my death, a lump sum, tax free pot of money, with which to do whatever she felt like doing. In my case, considering my health history of cancer and heart issues, I found that neither normal life insurance companies, nor those set up to insure “at risk” people, like myself, would insure me. That left converting the group life insurance I had with FedEx into an individual life insurance policy. The reason this could be done is that no medical questions or history are required, and more importantly, no physical is required. Of course the downside to this type of conversion is that the cost of the policy can be through the roof, for just the above stated reasons, ie no medical history, high-risk, etc.

It was at this point that I learned a lot. The group policy that FedEx was providing me had a face value of $400,000, but when I turned 65, they reduced it by roughly 20%, so that what they showed was a value of roughly $330,000. The folks at FedEx Pilot Benefits were fantastic, and they acted on my behalf to get me a quote from Lincoln National Life Insurance Company, the underwriters of the policy. When I got the quote I almost gagged. The premium was very close to $24,000 per year. Undo-able! The conversion would be to a Universal Life policy, so the premiums would stay the same, and I’d be covered until my 121st birthday, at which time the policy would lapse. I called Lincoln directly and asked if there was any other type of policy which I could convert to. Their answer was NO! That was the only policy type that they would convert to. Who lives to 121?

Here’s where it got interesting, because I got a friend of mine involved, who happened to own a business which provides high-risk clients with life insurance. He doesn’t underwrite the insurance, but works with many insurance companies who would write this type of business. He got in touch with Lincoln, and somehow managed to find out that the reason my conversion was going to be so expensive was that Lincoln was illustrating a policy with both an Endowment Rider and a policy which would accrue cash value. Neither were options I wanted. He put me in touch with a woman who told me that Lincoln could write the conversion the way I wanted, and to top that off, she immediately emailed me an illustration which showed the same face amount as the previous policy, but the cost had dropped to under $10,000, a reduction of over $14,000 per year (to age 91.) Fantastic.

However, I couldn’t even start the procedure of applying for the conversion until I was retired. So last Monday, two days after my retirement date, I called the good folks in pilot benefits and asked them to tell Lincoln I wanted to convert to an individual policy. The illustration arrived yesterday and low and behold, it was for exactly the same policy that they initially quoted, the one costing over $24K. However, one good thing was that the face value of the policy was not the $330K I had expected, but the full $400K of the original group policy. I got on the phone with the woman who had given me the information I wanted, and she said to just fill out the Request for Conversion and other paperwork Lincoln had sent me, but include her illustration, along with a check for the first two months premiums and I’d be good to go. The stuff went out FedEx overnight this morning.

The lesson I learned here was to not believe everything I see, read, or hear, but to be persistent and find the answer that fits your needs. I know for most of you, this post has no value, but perhaps there’s a few guys out there that are going through the same thing, and this might be of help.

So in conclusion, I’m taking the Straight Life Annuity and paying for the Universal Life Insurance policy with monies that I wouldn’t have had if I had selected one of the joint survivor options. This way, if my wife dies first, and I don’t want to leave the insurance to the kid, I can cancel the policy. If I’d selected one of the joint survivor options and my wife died two weeks later, I’d be stuck with the reduced pension amount forever. The insurance payout is tax-free, whereas the monthly checks my wife would have gotten, had I selected a spousal annuity would have been taxable, and if she had died shortly after I did, most probably because she no longer had me to drive nuts, all payments would have stopped and nothing would have been going to my kid or my heirs. Peace.

JJ
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Old 09-25-2012, 10:50 AM
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Default Good Info

Thanks JJ. Even though I'm many years out from dealing with retirement...etc, I found your information very helpful. Godspeed.
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Old 09-25-2012, 10:59 AM
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For the record, the payout of 400K and the premium of about 10K stay constant till you are 91?
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Old 09-25-2012, 11:13 AM
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I just completed the retirement process last week and managed to get $1,000,000 of term for just under $1100/month. Health is good and passed the physical with no problems. One policy is for 20 years and the other is for 25years. Came out to be $300/month better than the 100% survivior option with the FedEx pension. I have control over it and there are better tax advantages also.
So far here is what I have found on my journey:
FedEx Retirement: Outstanding
Social Security/Medicare: Outstanding (went in to this one expecting a hassle-very pleasantly surprised)
TriCare/TriCare for Life: Really simple
MediCare Supplement:Great agent put the policy in place with no problems
ALPA MediCare Supplement Reimbursement: lots of problems. Heard from some folks this can take up to 3 months and lots of phone calls/emails.
Just as JJ said, you need to prepare for this well in advance and get your ducks in a row. There doesn't really seem to be any one central place to go to get all of the information. Every one's situation is different and there is not one size that fits all. Think it through and ask lots of questions. The majority of the decisions you make cannot be changed.
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Old 09-25-2012, 11:16 AM
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Yes, both the face value (payout) and the monthly premium are guaranteed to stay the same until the policy lapses when I reach 91.

JJ
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Old 09-25-2012, 11:54 AM
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Great info. Thanks
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Old 09-25-2012, 12:16 PM
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JJ

Do you get good years toward retirement while on LTD? For instance if you went on disability at 20 years and retired at 25 what percent do you get.
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Old 09-25-2012, 12:35 PM
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Viper,

That was the major driving force behind my staying on LTD, because you continue to accrue both longevity as well as seniority. So in other words if you had gone on LTD at 20 years and stayed there for another 5 years, you'd retire with 50%.

JJ
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Old 09-25-2012, 01:55 PM
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JJ & Flyin:

Thanks VERY much for the info. I've heard the "book" answer is for administrators to suggest the generic joint survivor annuity. Good to hear this worked in your favor, especially with the history (JJ). Again, thanks for sharing this.

Cheers.
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Old 09-25-2012, 02:56 PM
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Originally Posted by a300fr8dog View Post
JJ & Flyin:

Thanks VERY much for the info. I've heard the "book" answer is for administrators to suggest the generic joint survivor annuity. Good to hear this worked in your favor, especially with the history (JJ). Again, thanks for sharing this.

Cheers.
You are welcome. We are all in this together.
The factor that determines your survivor benefit cost is the difference in your age and your spouse's age. In my case she is 6 years younger than me so they wanted just over 24% to leave her 100% of the pension amount and just over 14% for the 50% benefit. Your individual worksheet from Mercer will show you your costs. I started to request retirement estimates about three years before I retired. You can put the request in about March (that will make sure that last years earnings are included) and tell them you are going to retire on 30 November of that year. Takes about 4 weeks for the estimate to show up. The percentages will be close but they do change every year as you and your spouse age.
At least you will have some fairly accurate information to start your research.
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