Key Takeaways:
- The rising cost of FEGLI premiums, especially for older workers, has prompted some to look elsewhere for better life insurance options.
- Private insurance plans are offering more flexibility and customization, making them attractive alternatives to FEGLI for federal employees.
Why FEGLI Was Once the Gold Standard
For decades, the Federal Employees’ Group Life Insurance (FEGLI) program has been the go-to option for federal workers looking to secure life insurance coverage. Its main appeal? Convenience. When you’re a federal employee
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In addition to being easy to sign up for, FEGLI allowed for some degree of flexibility. You could opt for more than just the Basic coverage. There were also Options A, B, and C to increase your life insurance based on your family’s needs. It seemed to provide the full package: convenience, flexibility, and the backing of a trusted federal program.
But in 2024, with the landscape of life insurance evolving and the increasing cost of FEGLI premiums as you age, is it still a good deal? Let’s dig deeper into why some federal employees are walking away from FEGLI in favor of other options.
The FEGLI Premium Problem
When you’re young and new to federal employment, FEGLI premiums are manageable. For basic coverage, the cost comes directly out of your paycheck, and it feels like a fair trade-off. But here’s where it gets tricky: FEGLI premiums increase with age, especially for those who opt for additional coverage under Option B. For every five years you age, you enter a new rate bracket, which means your premiums climb sharply after hitting certain milestones like age 45, 50, and 55.
By the time you reach your late 50s or early 60s, you could be paying significantly more for the same level of coverage you had in your 30s. Many federal employees don’t realize how quickly these costs add up until they’re staring down retirement and the numbers just don’t seem to work in their favor anymore.
With the cost of FEGLI becoming harder to justify, it’s no surprise that more employees are beginning to reassess their life insurance options.
Alternatives to FEGLI: Why Federal Workers Are Jumping Ship
So, why are so many federal workers ditching FEGLI? For one, the private life insurance market has become more competitive in recent years, offering plans that are not only more affordable in the long run but also provide greater flexibility.
Private insurers often allow you to lock in a fixed premium rate for the life of the policy. This means you won’t face the increasing costs that come with FEGLI as you age. Plus, private plans offer more customization in terms of coverage levels, term lengths, and additional benefits like long-term care riders or accelerated death benefits.
Even though private plans do require medical underwriting, meaning you’ll need to qualify based on your health, many federal employees find that the savings and benefits far outweigh the initial hassle. And for those in good health, the premium rates offered by private insurers can be much lower than what FEGLI charges for comparable coverage.
Is FEGLI Still Worth It for Retirees?
The decision to stick with FEGLI becomes even more crucial as retirement approaches. For federal employees nearing the end of their careers, the costs of FEGLI can become an even bigger burden. Retirees often find that they no longer need as much life insurance coverage, especially if their mortgage is paid off and their children are financially independent. Yet, they’re stuck paying the ever-increasing premiums of FEGLI, which can feel like an unnecessary drain on their retirement income.
In 2024, the average retiree under the FEGLI program is facing higher premiums than ever before, especially if they’ve held onto Options B or C. While some retirees might decide to continue basic coverage (which remains relatively affordable), many are choosing to drop additional coverage and explore alternatives.
The good news is that retirees still have the option to reduce or cancel their FEGLI coverage altogether, freeing up more room in their budget for other retirement expenses.
The Long-Term Financial Impact of FEGLI
Federal workers planning for the future often overlook the long-term financial impact of sticking with FEGLI. While it may seem convenient and safe, the escalating costs can eat into your financial stability as you age. Over the span of 20 or 30 years, the cumulative cost of FEGLI premiums can become staggering compared to a private life insurance policy.
For example, if you’re currently paying $100 a month for FEGLI, that number could easily double or triple over the next few decades, whereas many private policies offer locked-in premiums that remain consistent over the life of the policy.
More employees are realizing that while FEGLI may have been the easiest choice at the start of their career, it’s not necessarily the best choice for long-term financial planning. This shift is leading many to explore alternatives, including term life insurance and other hybrid plans that combine life insurance with other benefits like investment options or long-term care.
What Should You Consider Before Dropping FEGLI?
Before you make any hasty decisions about your FEGLI coverage, there are a few things you should take into account. First, assess how much life insurance you really need. If you’re close to retirement, you might not need as much coverage as you did when you were younger, especially if your financial obligations have decreased. Take a hard look at your budget, your family’s needs, and your other insurance options.
Second, consider your health. If you’re in good health, applying for private insurance may be easier and more cost-effective than you think. However, if you have significant health concerns, sticking with FEGLI might still be your best option since it doesn’t require medical underwriting for basic coverage.
Lastly, timing is everything. If you’ve had FEGLI for most of your career and are approaching retirement, it might be worth holding onto Basic coverage, which remains affordable. But if you’re looking at the additional options like B or C, you’ll want to compare the costs to private plans to see if you could be saving money elsewhere.
Time to Make the Switch?
With FEGLI costs on the rise and the availability of more competitive private life insurance plans, it’s no wonder so many federal employees are rethinking their options in 2024. Whether you’re just starting your federal career or preparing for retirement, the best decision is one that fits your financial situation and future needs. FEGLI may have served you well, but there’s no harm in exploring your options—especially when better deals might be just around the corner.
