Key Takeaways
- Federal Employees’ Group Life Insurance (FEGLI) offers vital life insurance benefits, but not all options may be worth keeping into retirement.
- Understanding your retirement needs, costs, and FEGLI alternatives can help you make the best decision for your financial and personal situation.
Why FEGLI Matters for Retirees
Federal Employees’ Group Life Insurance (FEGLI) provides a valuable safety net during your federal career. But as you approach retirement, the question arises: Do you still need FEGLI? While it can offer peace of mind, retirement brings changes to both your financial priorities and the cost structure of this coverage. Evaluating what to keep and what to let go can save you significant money without compromising your financial security.
The Basics of FEGLI Coverage
- Also Read: Are You Eligible for the Federal Employee Retirement System (FERS)? Find Out Here
- Also Read: Why TSP Withdrawal Options Might Be More Flexible Than You Think for Federal Retirees
- Also Read: The Top Federal Employee Benefits You Should Be Tapping Into Right Now
FEGLI is a group term life insurance program offered to federal employees, covering you throughout your career. It includes several components:
- Basic Coverage: Equal to your annual salary rounded up to the nearest $1,000, plus an additional $2,000.
- Optional Coverage: Includes additional coverage options that you can add for yourself, your spouse, and your dependents.
The flexibility is appealing, but retirement is when FEGLI costs start to climb dramatically, especially for optional coverage. This change prompts many retirees to reevaluate their choices.
What Happens to FEGLI When You Retire?
Once you retire, you can keep your FEGLI coverage under certain conditions:
- Eligibility Requirements: You must have been enrolled in FEGLI for at least five consecutive years before retirement or since your first opportunity to enroll.
- Premium Changes: Unlike during your career, where basic coverage is heavily subsidized, the premiums for optional coverage skyrocket after age 65.
As a retiree, you can choose to maintain, reduce, or drop portions of your FEGLI coverage. Each choice has implications for your financial and personal life.
Breaking Down FEGLI Costs in Retirement
Basic Coverage: Worth Keeping?
The cost of basic coverage remains relatively low in retirement because the federal government continues to subsidize part of it. Many retirees find it worthwhile to keep, particularly since you can choose a 75% reduction option, gradually lowering your coverage (and eventually premiums) as you age.
- Reduction Option: At age 65, you can elect to reduce the coverage amount by 75%, which eventually brings the premium down to zero.
- Full Coverage Option: Alternatively, you can opt to keep 100% of the coverage amount, but this comes with higher premiums.
Optional Coverage: Tread Carefully
Optional FEGLI coverage can quickly become cost-prohibitive:
- Option A (Standard): Provides an additional $10,000 in coverage. While it might seem minor, the cost increases significantly as you age.
- Option B (Additional): Allows you to select coverage up to five times your annual salary. However, premiums increase steeply once you hit retirement age.
- Option C (Family): Covers your spouse and eligible children, but it may no longer be necessary if your dependents are financially independent.
For most retirees, Option B and Option C are the least cost-effective choices, leading many to drop or reduce these coverages.
How to Decide What to Keep
Step 1: Assess Your Financial Needs
Your retirement life insurance needs may differ significantly from your working years. Consider:
- Do you have other life insurance policies?
- Do you have dependents relying on your income?
- Have you built sufficient savings, investments, or a pension?
If your financial situation is strong, you may not need as much coverage as you did when working.
Step 2: Evaluate Long-Term Costs
Take the time to calculate how much you’ll pay for FEGLI over the next 10–20 years compared to its benefit. In many cases, the rising premiums outweigh the coverage’s value, particularly for optional coverage.
Step 3: Consider Alternatives
Private life insurance or annuities might offer better value for retirees. While these options require shopping around and a medical exam, they can sometimes provide more coverage at a lower cost compared to FEGLI.
Alternatives to FEGLI Coverage
If FEGLI doesn’t meet your needs, alternatives can bridge the gap. Here’s what to consider:
- Individual Life Insurance Policies: These allow more customization and can sometimes offer lower premiums, especially if you’re in good health.
- Final Expense Insurance: A smaller policy intended to cover end-of-life expenses like funerals and medical bills.
- Savings and Investments: Building a robust retirement savings plan can reduce or eliminate the need for additional life insurance.
Making the Most of FEGLI During Retirement
Maximize Your Benefits
If you decide to keep some of your FEGLI coverage, ensure you’re getting the most value:
- Choose the 75% reduction option for Basic Coverage if you don’t need full benefits later in life.
- Review your beneficiary designations regularly to ensure they align with your current wishes.
Plan for the Future
Life insurance needs don’t stay static. Reevaluate your coverage periodically to ensure it aligns with your evolving financial situation and family needs.
Common Pitfalls to Avoid
- Keeping Coverage Out of Habit: Many retirees keep FEGLI simply because it’s familiar. Don’t fall into this trap—reevaluate your needs!
- Ignoring Rising Costs: Optional coverage costs can snowball in retirement. Pay close attention to your premiums.
- Over-Insuring: If you’ve built significant assets, you might not need as much life insurance as you think.
FEGLI’s Role in Your Retirement Strategy
FEGLI isn’t a one-size-fits-all solution, especially in retirement. While it can provide valuable peace of mind, its rising costs may make it less practical for some retirees. By carefully evaluating your needs and exploring alternatives, you can create a retirement strategy that works best for you and your family.
Make Informed Choices About FEGLI Coverage
Understanding the intricacies of FEGLI is key to making the right decisions in retirement. Whether you keep it, reduce it, or replace it, the most important thing is to ensure your coverage aligns with your financial goals and retirement lifestyle. Taking the time to assess your needs now can save you money and stress later.
