3 Smart Alternatives to FEGLI That Can Save You Money in the Long Run

angelica roxas
May 10, 2025

Key Takeaways:

While FEGLI is a convenient life insurance option for federal employees, it may not always be the most cost-effective choice as you age. Exploring alternatives can provide more tailored coverage and long-term savings.
Understanding your options, including term life insurance, whole life insurance, and annuities, can help you make a smarter financial decision for retirement and your family’s future.

The Problem with FEGLI: Why You Might Need an Alternative

As a federal employee, you likely have Federal Employees’ Group Life Insurance (FEGLI). It’s an easy and automatic option for many, but just because it’s the default choice doesn’t mean it’s the best one. The truth is, FEGLI costs can skyrocket as you age, making it an expensive long-term solution. By the time you hit your 50s or 60s, your premiums may have increased significantly, eating into your retirement savings.

Beyond costs, FEGLI offers limited flexibility. You may want more control over your coverage, the ability to build cash value, or an option that supports your retirement planning more effectively. With a range of insurance alternatives available, finding a plan that fits your long-term financial goals is not only possible but also essential.

Luckily, you have other options. If you want to ensure your family is protected without overpaying, here are three smart alternatives to consider.

1. Term Life Insurance: A Flexible and Affordable Option

If your main goal is to provide financial security for your loved ones during your working years, term life insurance is worth considering. Unlike FEGLI, where costs increase over time, term life insurance offers a fixed rate for a set number of years. This stability makes it a predictable and often more affordable choice, particularly for those who plan to retire within a defined period.

How It Works

You choose a coverage amount and a term length (typically 10, 20, or 30 years).
Your premiums remain the same for the duration of the term.
If you pass away during the term, your beneficiaries receive a payout.
Once the term expires, coverage ends unless you renew it (often at a higher rate) or convert it into a permanent policy.

Why It’s a Smart Alternative to FEGLI

Lower costs in the long run – FEGLI premiums increase as you age, while term life insurance allows you to lock in a rate for the duration of the term.
Customizable coverage – You can tailor your policy to your needs rather than relying on FEGLI’s fixed structure.
Ideal for those retiring within a specific timeframe – If you plan to retire in 10-20 years and need coverage until then, term life insurance makes more sense than a lifelong policy.
Predictability – Since rates don’t increase unexpectedly, budgeting for premiums is easier.

What to Consider

If you outlive your policy, you’ll need to renew or find a new coverage option.
Unlike FEGLI, which automatically renews, you need to actively manage your policy.
If you need lifelong coverage, you might prefer a permanent life insurance option instead.

2. Whole Life Insurance: A Long-Term Safety Net

Unlike term life insurance, whole life insurance is a permanent policy that lasts your entire life as long as you keep up with the premiums. While this option is generally more expensive upfront, it offers stable coverage and a built-in savings component. It can serve as a financial tool that accumulates value over time, offering both protection and investment growth.

How It Works

Coverage lasts your entire life, regardless of age.
Premiums remain level (unlike FEGLI, which increases over time).
A portion of your premium goes into a cash value component, which grows over time.
You can borrow against the policy’s cash value or even cash it out if needed.

Why It’s a Smart Alternative to FEGLI

Stable premiums – Instead of rising costs, you lock in a rate for life.
Builds cash value – Unlike FEGLI, which only provides a death benefit, whole life insurance acts as an asset.
Lifelong coverage – If you want to ensure your family has financial protection no matter when you pass away, this is a strong option.
Potential dividends – Some whole life policies provide additional financial benefits.

What to Consider

Premiums are higher compared to term life insurance.
The savings component may take years to build significant value.
If you only need coverage for a specific period, term life insurance might be a more cost-effective choice.

3. Annuities: A Different Approach to Financial Security

While not a traditional life insurance product, annuities can serve as an alternative way to provide financial security for your loved ones. If your main goal is ensuring income for your spouse or dependents after you retire, annuities can be a strategic choice. They offer predictable payouts that can support long-term financial stability.

How It Works

You pay into an annuity over time or as a lump sum.
The annuity then provides a steady stream of income for life or a set period.
Some annuities offer a death benefit, ensuring your beneficiaries receive remaining funds after your passing.

Why It’s a Smart Alternative to FEGLI

Guaranteed income – Instead of a lump sum payout, your beneficiaries may receive regular income, helping them manage finances.
No expiration date – Unlike term life insurance, annuities don’t end after a certain number of years.
Good for retirement planning – If you’re near retirement and looking for ways to create financial stability for your family, annuities offer peace of mind.
Tax advantages – Certain annuity structures allow for deferred tax benefits.

What to Consider

Some annuities have high fees or surrender charges.
They may not provide the same immediate death benefit as traditional life insurance.
If you want a large lump sum payout for your beneficiaries, a life insurance policy may be a better fit.

Making the Right Choice for Your Future

FEGLI is a solid option for many federal employees, but it’s not the only choice. As you get closer to retirement, reviewing your life insurance needs can help you avoid unnecessary costs and ensure your family is well-protected.

When to Reevaluate Your Life Insurance Options

When you reach age 50, as FEGLI costs start increasing more sharply.
If you’re approaching retirement and want a better long-term solution.
If you have dependents or a spouse who will rely on your benefits.
If you’re looking to maximize your retirement savings and avoid excessive insurance costs.

Switching to an alternative life insurance option doesn’t have to be complicated. With the right information, you can make a confident choice that suits your needs and budget.

If you’re unsure which option is best for you, get in touch with a licensed agent listed on this website. They can help you explore different policies and find the best fit for your financial future.

Secure Your Family’s Future with the Right Plan

Your life insurance decision affects your loved ones, your finances, and your peace of mind. By exploring alternatives to FEGLI, you can find a policy that offers better value, stability, and long-term benefits. Don’t wait until your premiums become unaffordable—start planning today and take control of your financial future.