Key Takeaways
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FEGLI premiums rise sharply as you age, especially after retirement. If you’re not paying attention, the cost can outpace the benefit.
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Understanding when to reduce or cancel your FEGLI coverage can help you avoid unnecessary expenses while still protecting your family.
What FEGLI Offers—and What It Doesn’t
The Federal Employees’ Group Life Insurance (FEGLI) program provides term life insurance to public sector employees. It includes:
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Basic coverage that equals your annual salary (rounded up to the nearest $1,000) plus $2,000.
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Optional coverage
such as Option A, B, and C, which allow you to add more coverage for yourself, your spouse, or your children.
What it doesn’t provide is a cash value or investment component. FEGLI is purely term insurance—costs increase with age, and there’s no payout unless you die while covered.
Why Costs Escalate After Retirement
When you’re an active employee, the government pays one-third of your Basic coverage premium. But in retirement, that subsidy stops. You pay the full amount.
Even more critical:
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Option B and C premiums are age-based and increase in 5-year age bands.
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The cost can double, triple, or worse after age 60.
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For example, between age 65 and 70, Option B can become one of your biggest monthly expenses if you carry high multiples.
While FEGLI can offer peace of mind early in your career, it can become financially unsustainable in retirement unless you make strategic decisions early.
Your Three Main Choices at Retirement
When you retire, you face three key options regarding your FEGLI coverage:
1. Continue Full Coverage and Pay Full Cost
You can choose to keep your full Basic and Optional coverage. But that means:
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Paying the entire premium out of your annuity.
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Watching premiums rise every five years for Option B and C.
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No government contribution to reduce your costs.
This option only makes sense if you:
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Need the full amount of life insurance for dependents or debts.
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Don’t qualify for more affordable private coverage.
2. Elect the 75% Reduction Option for Basic Coverage
This allows your Basic coverage to decrease by 2% per month after age 65 (if you are not paying premiums), until it reaches 25% of its original value.
Key points:
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You stop paying premiums for Basic at age 65 if you elect this option.
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Coverage remains in place at a reduced amount for life.
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This is often the most cost-effective long-term option.
3. Cancel or Reduce Option B and C
Option B and C allow you to reduce your coverage down to zero or allow it to reduce by 75% in retirement.
Important factors:
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Reducing to zero cancels the coverage entirely.
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Reducing by 75% keeps a fraction of the coverage for life.
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Cost savings can be significant after age 65.
Age 65 Is the Turning Point
FEGLI becomes most expensive after age 65—and that’s also when you need to decide on your reduction choices.
By age 65, you’ll be prompted to choose whether you want the 75% reduction, no reduction, or full reduction for each part of your coverage. These decisions:
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Are generally irrevocable.
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Affect your premium costs for the rest of your life.
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Can’t be changed easily later on.
It’s crucial to weigh these options against your actual insurance needs.
How to Evaluate If You Still Need FEGLI
Many retirees keep paying for FEGLI coverage simply because they’ve always had it. But retirement changes your financial picture.
Here’s how to reassess:
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Do you still have financial dependents? If your children are grown and your spouse is covered by other means, your insurance needs may have dropped.
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Do you have other life insurance? If you’ve taken out a personal policy earlier in life, you might no longer need FEGLI.
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Do you have sufficient savings or a TSP balance? If your retirement accounts can cover final expenses or legacy goals, you may not need to maintain full FEGLI.
Don’t Confuse Coverage with Security
FEGLI can give a false sense of security if you’re not actively managing it.
Here’s what to avoid:
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Letting FEGLI premiums quietly eat away at your annuity. High premiums in retirement can affect your monthly income.
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Assuming your loved ones need the full payout. Sometimes, a reduced policy still meets your goals.
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Not comparing with other available insurance. While you should never jump into private plans without proper research, exploring your options before retirement gives you flexibility.
Planning Ahead in Your 50s and Early 60s
If you’re in your 50s or early 60s, this is the window to act while your health is better and premiums are manageable.
Start by:
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Reviewing your current FEGLI coverage on your Leave and Earnings Statement or retirement estimate.
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Requesting a cost projection from your HR or retirement office.
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Considering applying for private term or permanent insurance for comparison.
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Talking to a licensed professional to map out your post-retirement financial plan.
Making changes before you retire gives you control. After you retire, your choices narrow significantly.
The Risk of Delaying Decisions
Many retirees postpone FEGLI decisions, thinking they can just wait and see. That strategy has a cost.
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Each passing year increases your Option B and C premiums.
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If you develop health issues, private insurance may become unaffordable or unavailable.
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Missing the age 65 election window locks you into higher premiums.
Even if you’re unsure, starting the conversation now can prevent a financial surprise later.
Survivor Benefits and Life Insurance Aren’t the Same
It’s important to distinguish FEGLI from your survivor benefits under your annuity.
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Survivor benefits ensure your spouse continues to receive a portion of your pension.
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FEGLI pays out a lump sum upon your death.
Many retirees overestimate the need for both. If your survivor annuity is enough to support your spouse, full FEGLI may be unnecessary.
What Happens If You Do Nothing?
If you make no changes:
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Your coverage and premiums continue as is.
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You’ll automatically be charged full price for Basic.
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Option B and C will follow their current age-based pricing.
Inaction is a decision—and it can be an expensive one. Stay informed and revisit your life insurance as part of your retirement review.
Make Insurance Work for You in Retirement
Life insurance isn’t a set-it-and-forget-it benefit. You should adapt it to your retirement lifestyle, health, and financial goals. Don’t wait until FEGLI becomes a burden—take control of it before it controls your annuity.
Get in touch with a licensed professional listed on this website for a one-on-one review of your FEGLI options and how they fit into your retirement income strategy.
