Key Takeaways:
- FEGLI premiums increase significantly as you age, so it’s essential to evaluate whether it still aligns with your financial goals and coverage needs.
- Exploring alternative life insurance options could offer better coverage and cost savings, especially for retirees or those nearing retirement.
Understanding FEGLI: A Quick Overview
- Also Read: How Law Enforcement Officers Are Making the Most of Special Retirement Perks and Early Exit Options
- Also Read: Balancing Social Security and Federal Pensions: What Every Employee Should Consider in 2025
- Also Read: Common Mistakes Federal Employees Make When Planning for Retirement
Whether you’re a long-time federal employee or nearing retirement, rising premiums may make you question if it’s still the right fit. Let’s dive into what’s happening with FEGLI premiums, how it impacts you, and whether it’s time to consider other options.
Why Are FEGLI Premiums Rising?
FEGLI premiums are structured to rise significantly as participants age, particularly after age 50. These increases are tied to the higher risks associated with providing life insurance to older individuals. For Basic coverage, premiums are relatively stable throughout your career, as they’re partially subsidized by the government. However, Optional coverages like Option B and Option C—covering additional multiples of your salary or family members—become progressively more expensive.
Key Points to Note:
- Basic Coverage: Premiums increase slightly every five years after age 35.
- Optional Coverage: Option B costs rise sharply after age 50, and by retirement, the premiums may become difficult to justify.
- Retiree Premium Rates: After retirement, you may lose some employer subsidies, further increasing your out-of-pocket costs.
What Do Rising FEGLI Costs Mean for You?
1. Impact on Your Budget
As premiums climb, they can take up a larger share of your budget—particularly in retirement, when your income may be fixed or reduced. The jump in costs every five years can be a rude awakening if you haven’t planned for it.
2. Coverage Value vs. Cost
FEGLI’s group insurance model might not always be the best value for everyone, especially for retirees or those with specific coverage needs. You may find that you’re paying high premiums for coverage that you could obtain elsewhere at a lower cost.
3. Retirement Considerations
When you retire, FEGLI’s Basic coverage offers a “50% reduction” and “75% reduction” option. While these reduce premiums, they also significantly reduce the payout amount, which may not align with your family’s financial needs.
Should You Keep FEGLI?
Deciding whether to stick with FEGLI depends on several factors, including your age, financial situation, health, and coverage needs. Here are some considerations to guide your decision:
1. Your Current and Future Needs
Ask yourself: Does the coverage provided by FEGLI match your family’s needs? If your children are grown, or if you’ve paid off debts like a mortgage, your life insurance needs may have decreased.
2. The Premiums You’re Paying
Compare the rising FEGLI premiums to other available options. If you’re in good health, private life insurance policies might offer competitive rates for comparable or better coverage.
3. Your Retirement Plans
If you’re retiring soon, evaluate the reduced FEGLI coverage options. You might decide to keep Basic coverage with a reduction while dropping expensive Optional coverages.
Exploring Alternatives to FEGLI
Rising FEGLI premiums can make other life insurance options more attractive. Here’s what to consider when exploring alternatives:
1. Term Life Insurance
Term life insurance policies provide coverage for a fixed period, such as 10, 20, or 30 years. These policies often have lower premiums compared to FEGLI, especially if purchased early or while in good health.
2. Whole Life Insurance
Unlike term policies, whole life insurance offers lifelong coverage and builds cash value over time. While it’s more expensive, it may suit those seeking long-term coverage with investment potential.
3. Comparison Shopping
Take the time to compare policies from different providers. Ensure you consider factors like coverage limits, costs, and underwriting requirements.
Steps to Evaluate Your Options
Before making any changes to your life insurance, follow these steps to make an informed decision:
1. Assess Your Current FEGLI Coverage
Review your most recent FEGLI election form to understand your coverage type and premium rates. Pay close attention to any scheduled increases in costs.
2. Calculate Your Coverage Needs
Use a life insurance calculator or consult a financial planner to determine how much coverage you truly need. Consider expenses like remaining debts, living costs for dependents, and potential medical or funeral expenses.
3. Research and Compare Alternatives
Get quotes from private insurers and compare them with your FEGLI premiums. Keep in mind that private policies often require medical underwriting, so your health status may influence your rates.
4. Make a Gradual Transition
If you find a better alternative, consider overlapping your new policy with your FEGLI coverage for a short period. This ensures no gap in coverage during the transition.
Key Timelines to Remember
- Mid-Career Employees (Ages 35-50): Premium increases are moderate, but start reviewing your needs now to avoid surprises later.
- Approaching Retirement (Ages 50-65): This is when FEGLI premiums spike. Begin exploring alternatives well before retirement to lock in favorable rates elsewhere.
- Post-Retirement (Ages 65+): Retirees face the choice of reducing coverage to control costs or switching entirely to other options.
Making the Best Decision for Your Future
Deciding whether to keep FEGLI or move to another insurance option is personal and depends on your unique circumstances. However, staying informed and proactive will help you avoid paying more than necessary for coverage that no longer serves you.
Take a close look at your financial picture, consult with a trusted advisor if needed, and weigh all your options before making a move. By doing so, you can secure the protection your loved ones need—without overpaying for it.
Simplify Your Coverage Choices
Rising FEGLI premiums don’t have to derail your financial plans. With a clear understanding of your coverage needs and available alternatives, you can make informed decisions that balance cost and value. Start exploring your options today to ensure your life insurance policy truly works for you.
