Rising FEGLI Premiums Are Encouraging Federal Employees to Explore Smarter Life Insurance Options for the Future

Key Takeaways

1. Rising FEGLI premiums in 2025 are making it crucial for federal employees to reassess their life insurance strategies for retirement.

2. Exploring supplemental and alternative life insurance options can help you secure comprehensive coverage at potentially lower costs.

Understanding the FEGLI Program

The Federal Employees Group Life Insurance (FEGLI) program is a cornerstone of the federal benefits package. Established to provide life insurance to federal employees, it remains one of the most widely used options. FEGLI offers:

• Basic Life Insurance: Automatically provided to most federal employees, covering your annual salary rounded up to the next $1,000, plus an additional $2,000.

• Optional Insurance:

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  Includes additional coverage tiers such as Option A, Option B, and Option C, each tailored for different needs.

While FEGLI is convenient and offers guaranteed coverage without a medical exam, its rising premiums, especially as you age, are prompting many to explore alternative options.

Why Are FEGLI Premiums Increasing?

FEGLI premiums increase with age, particularly for the optional coverages. As you move into higher age brackets, the cost can rise significantly. For example:

• Basic Coverage: Premiums remain relatively stable, with adjustments tied to salary.

• Optional Coverage: Costs for Option B and Option C surge dramatically after age 50. By the time you reach retirement, the premiums can become a financial strain.

This trend makes it essential to reassess whether FEGLI is still the most cost-effective solution for your life insurance needs.

Evaluating Your Life Insurance Needs

As you approach retirement, your life insurance needs may shift. Consider these factors:

1. Financial Obligations: Do you still have dependents relying on your income? Are there significant debts, like a mortgage, that need to be addressed?

2. Estate Planning: Life insurance can serve as a tool for leaving a legacy or covering estate taxes.

3. Healthcare Costs: Consider potential long-term care expenses or medical bills that could impact your loved ones.

4. Replacement Income: If you’re retiring early, life insurance can supplement income for your family until other retirement benefits kick in.

Understanding these needs will guide you toward the right type and amount of coverage.

Alternatives to FEGLI: Smarter Options for the Future

Rising FEGLI premiums mean it’s time to consider alternative strategies. Here are some common options federal employees explore:

1. Supplemental Private Life Insurance

Many federal employees opt for private policies to supplement or replace FEGLI coverage. Private insurers often offer more flexible terms, customizable benefits, and the potential for lower costs depending on your health and age. Policies like term life or whole life can provide tailored solutions:

• Term Life Insurance: Offers coverage for a specified period, such as 10, 20, or 30 years, and is typically more affordable than whole life policies.

• Whole Life Insurance: Provides lifelong coverage with the added benefit of a cash value component that grows over time.

2. Standalone Retirement Plans

Consider shifting your focus to retirement savings plans like the Thrift Savings Plan (TSP) or other investments. By building a robust retirement portfolio, you may reduce your need for extensive life insurance coverage.

3. Spousal Coverage

If your spouse’s employer offers life insurance, compare the premiums and benefits. In some cases, spousal plans provide better value.

Timing Is Everything: When to Make the Switch

Making changes to your life insurance plan requires strategic timing. Here’s a suggested timeline:

1. Mid-Career (Ages 40-50): Begin evaluating your life insurance needs and comparing costs between FEGLI and private options. Consider locking in a private policy while premiums are lower.

2. Pre-Retirement (Ages 50-60): Analyze your projected retirement income, TSP balance, and remaining financial obligations. This is the ideal time to transition to a private policy if FEGLI premiums become unsustainable.

3. Retirement (Age 60+): Decide whether to reduce your FEGLI coverage to Basic only or drop it entirely if private options meet your needs.

Combining FEGLI with Other Plans

Instead of an all-or-nothing approach, you can combine FEGLI with supplemental insurance. For example:

• Maintain FEGLI Basic coverage for its affordability and guaranteed acceptance.

• Add a private term life policy for higher coverage during peak financial obligation years.

• Consider a whole life policy for estate planning and cash value accumulation.

This hybrid strategy balances cost and coverage.

Benefits of Reviewing Your Options

Regularly reviewing your life insurance coverage ensures you’re making informed decisions. Benefits include:

1. Cost Savings: Avoid overpaying for coverage you no longer need.

2. Comprehensive Coverage: Tailor your policy to align with your current financial goals.

3. Long-Term Stability: Lock in lower premiums and secure coverage for future needs.

Tools to Help You Compare Options

Several resources are available to help federal employees evaluate life insurance plans:

• FEGLI Calculator: Provided by OPM, this tool estimates your current and future premiums.

• Online Quote Tools: Many private insurers offer quick online quotes, allowing you to compare rates easily.

• Financial Advisors: Consulting a professional can provide personalized insights into your insurance needs.

Avoiding Common Pitfalls

When reassessing your life insurance options, keep these tips in mind:

1. Don’t Wait Too Long: Premiums increase with age, so act sooner rather than later.

2. Understand Policy Terms: Make sure you’re clear on coverage limits, exclusions, and cancellation terms.

3. Avoid Over-Insuring: Assess your actual needs to avoid paying for unnecessary coverage.

How to Make the Transition

Switching from FEGLI to private insurance doesn’t have to be complicated. Here’s how to approach it:

1. Compare Costs: Use tools and resources to evaluate FEGLI premiums versus private options.

2. Apply for New Coverage: If opting for a private policy, you may need to undergo a medical exam.

3. Adjust FEGLI Coverage: Once your new policy is active, reduce or cancel optional FEGLI coverage to save on premiums.

Preparing for the Future

Rising FEGLI premiums don’t have to derail your retirement plans. By exploring alternative options, reassessing your needs, and acting strategically, you can secure the right coverage at the right price.

Securing Peace of Mind for Retirement

Your life insurance is a vital component of your overall retirement strategy. Whether you stick with FEGLI, supplement it, or switch entirely, the key is ensuring your plan aligns with your financial goals and provides peace of mind for your loved ones.