Dropping FEGLI Sounds Smart—Until You Realize What It No Longer Covers After Retirement

Missy E
November 14, 2025

Key Takeaways

Dropping FEGLI coverage at retirement might seem like a cost-saving move, but doing so can leave you and your survivors without key financial protection when it’s needed most.
Understanding what FEGLI no longer covers once you retire or reduce your coverage helps you make a better decision about maintaining or modifying your life insurance benefits.

The Comfort of FEGLI During Your Federal Career

As a government employee, the Federal Employees’ Group Life Insurance (FEGLI) program offers a stable and accessible form of life insurance. It provides Basic coverage automatically unless you opt out and allows optional coverage tiers that scale with your salary and family needs. During your working years, the cost is often reasonable due to payroll deductions and age-based premiums.

You may have grown used to FEGLI being there in the background—reliable, affordable (at least early in your career), and comprehensive enough to provide peace of mind. But retirement changes the equation entirely.

What Changes When You Retire

Once you retire, your FEGLI coverage does not simply continue at the same level. The program changes significantly:

Basic Coverage Reduces Over Time: If you choose the 75% reduction option, your Basic coverage decreases by 2% each month starting at age 65 (or your retirement date if later), eventually reducing to 25% of its original value.
Optional Coverage Becomes More Expensive: Optional life insurance coverage under Options A, B, and C sees sharp premium increases after age 55. These premiums are paid out-of-pocket after retirement, and many retirees find them unaffordable.
Coverage Loss Is Irreversible: If you cancel or fail to elect continued coverage during the retirement process, you cannot re-enroll later. The decision is permanent.

Understanding these details is essential to evaluating the true cost and value of keeping or dropping FEGLI in retirement.

What FEGLI No Longer Covers If You Drop It

If you’re considering dropping FEGLI when you retire, it’s important to know exactly what protections you’ll lose:

1. Survivor Income Replacement

FEGLI’s Basic and Optional coverages provide a tax-free lump sum to beneficiaries, which can help replace lost income. If you drop coverage, your surviving spouse or dependents might face an immediate financial shortfall.

Social Security survivor benefits may not be sufficient alone.
Survivor annuity reductions may not cover unexpected expenses.

2. Funeral and Final Expenses

One of the most common uses of life insurance is covering funeral costs, which can easily exceed $10,000 in 2025. Dropping FEGLI means your family must fund these expenses out of pocket or from other savings.

3. Medical or Long-Term Care Debt

While FEGLI isn’t designed to pay for healthcare, any unpaid medical bills or long-term care debts can burden your estate. A life insurance payout helps prevent your family from inheriting debt after your passing.

4. Protection Against Market Risk

If you’re relying solely on investments, market downturns or insufficient growth could leave your family financially exposed. FEGLI provides a guaranteed payout, regardless of economic conditions.

5. Dependents’ Financial Security

For those with adult children who rely on support, disabled dependents, or minor grandchildren in their care, FEGLI can serve as a financial backstop. Dropping it removes that layer of security.

Cost Considerations vs. Coverage Loss

It’s no secret that FEGLI premiums rise with age—especially for Options B and C. After age 65, some premiums can increase every five years. Many retirees balk at these costs and assume the coverage isn’t worth it.

But here’s the trade-off:

Saving on premiums often means giving up substantial death benefits.
Private policies may not be available or affordable due to age or health conditions.
Reducing FEGLI is not the same as dropping it—there are reduction options that still keep some coverage in place at no cost after age 65.

Weighing these pros and cons is critical, especially if you have health conditions or minimal other life insurance coverage.

Evaluating Your Other Coverage Options

Before making a decision, you should compare FEGLI to any other life insurance you might hold:

Individual term or whole life insurance policies may offer better rates when purchased earlier in life, but not necessarily in your late 50s or 60s.
Group life insurance through associations may be more flexible, but typically ends at a certain age.
No medical exam life insurance can be convenient but is often expensive and has lower coverage limits.

FEGLI has the advantage of not requiring medical underwriting during your federal service. If you’re older or have medical conditions, keeping it might be your best option—even if only in a reduced form.

How to Make an Informed Decision

To keep your financial plans on track in retirement, consider the following steps:

Review your retirement paperwork carefully: Make sure you understand your options for Basic and Optional FEGLI coverage.
Talk to a licensed agent: A professional can help you weigh the value of continuing FEGLI versus other insurance options.
Look at your total retirement income: Can you comfortably afford the premiums? If not, can you choose a reduced coverage option instead of dropping it entirely?
Think long term: Don’t just consider what you need at age 65—think about the financial needs of your survivors 10 or 20 years into retirement.

The 2025 Reality: Why More Retirees Are Rethinking Cancellation

In 2025, the rising cost of living and health care has pushed many retirees to rethink old assumptions. While canceling FEGLI might have seemed logical back in 2020 or 2021 when inflation was lower, the financial landscape has changed.

Today, your survivors may face higher expenses for:

Housing and property taxes
Out-of-pocket medical care
Long-term care not covered by insurance
Day-to-day living expenses

Keeping a form of guaranteed, tax-free life insurance can help offset these risks. Even the reduced Basic coverage at no cost after age 65 can play a meaningful role in your estate planning.

Strategic Use of FEGLI in Retirement Planning

If you’re looking to strike a balance, consider these approaches:

Opt for 75% Reduction on Basic: This allows your Basic FEGLI coverage to remain in place at a reduced amount without costing you anything after age 65.
Drop Only Optional Coverage: If premiums have become unaffordable, keeping Basic and eliminating Optional coverage may help maintain some protection without financial strain.
Use FEGLI to Supplement Other Coverage: Rather than relying solely on FEGLI, use it to complement other life insurance or savings.

FEGLI isn’t an all-or-nothing proposition. A partial strategy can be the right choice.

Common Misunderstandings That Can Lead to Mistakes

Many retirees unintentionally give up FEGLI coverage because of false assumptions. Don’t fall for these:

“I won’t need life insurance in retirement.” This may be true for some, but not for those with dependents or outstanding financial obligations.
“Medicare or Social Security will cover everything.” Neither program provides a death benefit large enough to support surviving family members.
“I can always get a policy later if I change my mind.” Not with FEGLI. Once it’s gone, it’s gone.

Double-check your forms, ask questions, and don’t rush your decision.

You Only Get One Shot at This Decision

FEGLI retirement decisions are final. You can’t reapply, restart, or reverse them after separation from service. That makes this one of the most important life insurance decisions you’ll make.

Don’t view it as just another retirement checkbox. Treat it like the serious, long-term commitment it is.

Reassess Before You Let Go of FEGLI

The decision to drop FEGLI at retirement isn’t as simple as it may appear. With rising costs, longer lifespans, and increasing financial pressure on families, life insurance remains a critical part of your retirement plan in 2025.

Before you cancel or reduce coverage, reassess your financial goals, survivor needs, and overall protection strategy. And if you’re not sure, talk with a licensed agent listed on this website for personalized advice that fits your situation.