Four FEGLI Premium Facts That Could Save You Big Before You Retire

Key Takeaways

1. Knowing the factors that affect your Federal Employees’ Group Life Insurance (FEGLI) premiums can help you make informed decisions about coverage as you approach retirement.

2. Reviewing and adjusting your coverage before retirement might save you significant costs in the long term.

Why FEGLI Matters for Federal Retirees

As a federal employee, your Federal Employees’ Group Life Insurance (FEGLI) coverage has likely been a cornerstone of your benefits package. But as retirement approaches, understanding how premiums work can mean the difference between a manageable expense and an unnecessary financial burden. With FEGLI premiums increasing sharply with age, especially after retirement, now is the time to evaluate your options.

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1. Premiums Increase With Age—Plan Ahead

FEGLI’s Basic and Optional coverages come with premiums that increase significantly as you age. While you might not notice these incremental jumps during your working years, they can quickly become a major expense once you retire.

Key Timeline for Premium Increases

• Basic Coverage: Your premiums remain relatively stable while employed, as the government shares the cost. After retirement, the full premium is your responsibility unless you reduce your coverage.

• Option B and C Coverage: Premium rates increase every five years starting at age 35. These increments continue well into retirement, often doubling or tripling between your 50s and 70s.

What You Can Do

• Review your coverage now. If your children are grown or your mortgage is paid off, you might no longer need higher levels of coverage.

• Consider reducing or canceling Optional coverages before these significant rate hikes take effect.

2. Understanding the Post-Retirement Reduction Options

FEGLI Basic Coverage offers retirees several reduction options that can significantly affect both your premiums and your payout. You must make this election before retirement, so understanding your choices is crucial.

Reduction Choices:

• 75% Reduction: Your coverage amount decreases by 2% per month after age 65, until it’s reduced to 25% of its original value. This option comes with no cost after age 65.

• 50% Reduction: Your coverage amount decreases by 1% per month after age 65, until it’s reduced to 50% of its original value. This option carries a small premium.

• No Reduction: Your full coverage amount continues for life, but this option has significantly higher premiums.

Weighing the Options

• The 75% reduction option is ideal for retirees who want to minimize costs while still maintaining a basic safety net for their loved ones.

• Opting for no reduction may only make sense if you have a strong financial need to maintain the full benefit.

Evaluate these options carefully, as your decision cannot be changed once you retire.

3. Optional Coverage Might Not Be Worth It After Retirement

While Optional coverage can provide valuable additional benefits during your career, it’s often not cost-effective in retirement. Let’s break it down:

Option A (Standard Optional Insurance):

This flat $10,000 policy has modest premiums that don’t rise as dramatically as other options. However, it’s worth reviewing whether this small benefit justifies its ongoing cost.

Option B (Additional Insurance):

Allows you to choose coverage up to five times your salary, but premiums increase steeply with age. For retirees, the cost often outweighs the benefit.

Option C (Family Coverage):

Provides insurance for your spouse and children. Like Option B, premiums rise with age and might no longer make financial sense after retirement.

What to Do About Optional Coverage

• Evaluate your overall financial situation and determine whether you still need this additional coverage.

• Compare FEGLI’s premiums with other insurance options, such as private term life insurance, to see if there’s a more affordable solution.

• Remember: If you decide to cancel an Optional coverage option, it cannot be reinstated later.

4. Survivor Needs and Financial Planning

FEGLI coverage is often purchased to provide for loved ones in the event of your passing. However, your financial needs and goals may change as you approach retirement. Consider these questions:

Do You Still Need FEGLI?

• Are your children financially independent?

• Have you saved enough to cover your spouse’s future needs without additional life insurance?

• Do you have other financial assets, such as a Thrift Savings Plan (TSP), pensions, or investments, that can provide for your family?

Alternatives to FEGLI

Private life insurance might offer lower premiums or better customization for retirees. Additionally, some federal retirees opt to reduce their FEGLI coverage and rely on a combination of retirement savings and other insurance.

Planning Tips

• Conduct a financial needs analysis with your spouse or financial advisor.

• Consider your estate planning goals, such as leaving a legacy or funding end-of-life expenses.

• Factor in healthcare costs, long-term care, and other potential expenses when determining how much insurance you truly need.

When to Make Your Decisions

Timing is everything when it comes to FEGLI. Decisions about reducing or canceling coverage must be made before you retire. Here are a few critical deadlines to keep in mind:

• Before Retirement: Review all FEGLI options and make your elections while still employed. Waiting until after retirement limits your choices and increases costs.

• At Age 65: For Basic coverage, age 65 is when reductions and premium changes take effect. Plan for this milestone well in advance.

Don’t wait until the last minute to address your FEGLI coverage. Start planning at least one year before retirement to ensure you make well-informed decisions.

Your FEGLI Checklist

1. Review Current Coverage: Assess your Basic and Optional coverage to see if it aligns with your post-retirement needs.

2. Understand Costs: Use FEGLI calculators or consult your benefits office to project future premiums and compare reduction options.

3. Evaluate Alternatives: Explore private insurance options or other financial tools if FEGLI premiums become prohibitive.

4. Talk to a Financial Advisor: Seek guidance from a professional who understands federal benefits.

5. Make Your Decisions Early: Ensure all changes are made before your retirement date.

Planning for a Secure Future

FEGLI is a valuable benefit, but it’s not a one-size-fits-all solution. By taking the time to understand how premiums work and evaluating your personal needs, you can make decisions that align with your financial goals and provide peace of mind for you and your loved ones.