Key Takeaways:
- FEGLI premiums rise significantly with age, especially after retirement, prompting many federal retirees to explore alternative insurance options.
- Understanding the pros and cons of staying with FEGLI versus switching to private or supplemental insurance is essential for making the best choice for your financial and healthcare needs.
Why Are FEGLI Premiums Increasing So Much?
Federal Employees’ Group Life Insurance
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FEGLI premiums are based on age brackets, with noticeable hikes every five years. Once you hit retirement, the rising costs can feel even more pronounced since they often outpace other retirement expenses like Medicare premiums or health insurance. These increases are largely tied to the higher risk associated with insuring older individuals, making it essential for you to carefully evaluate if sticking with FEGLI is worth the cost.
What Does FEGLI Offer, and Why Is It Popular?
FEGLI is well-known for its accessibility and simplicity. As a federal employee, you were automatically enrolled in FEGLI Basic coverage unless you opted out. It offers:
- Basic coverage equal to your annual salary rounded up to the nearest $1,000, plus an additional $2,000.
- Optional coverage with three tiers (Option A, B, and C) that allow you to expand your coverage based on your needs.
For many, the appeal of FEGLI lies in its ease of enrollment and payroll deductions. You didn’t need to undergo medical exams to qualify, and premiums were automatically deducted from your paycheck.
However, once you retire, the convenience comes at a cost. Premiums are no longer subsidized by your employer, and the age-based increases can eat into your fixed income.
When Should You Start Evaluating Your Options?
The best time to reassess your life insurance needs is at least 5–10 years before you retire. This gives you ample time to explore alternatives, secure lower rates, and adjust your financial plans. Waiting until after retirement can limit your options, especially if health issues arise that could impact eligibility or premiums for new insurance plans.
Additionally, consider evaluating your coverage needs when you enter a new age bracket in FEGLI’s premium structure, as these are the points when costs typically jump.
Alternative Insurance Options for Federal Retirees
When FEGLI premiums start to outweigh the benefits, you might consider exploring other life insurance solutions. These could include:
Supplemental Insurance Plans
Supplemental plans can bridge the gap between your current coverage and your actual needs. Many retirees find these plans useful to complement their existing FEGLI Basic coverage while reducing overall costs.
Private Life Insurance
Private insurance often provides more customizable coverage options, allowing you to tailor a plan that fits your current financial situation and health. While you might need a medical exam, the potential for lower, fixed premiums makes this an attractive option for those in good health.
Term Life Insurance
Term life policies are a popular choice for retirees who only need coverage for a specific period, such as the first 10–20 years of retirement. These policies generally have lower premiums compared to whole life insurance but offer no cash value or lifelong protection.
Factors to Consider When Switching Insurance Plans
Deciding whether to stay with FEGLI or switch to another plan depends on several key factors:
1. Your Current Health
If you’re in good health, private insurance or supplemental plans may offer better rates than FEGLI. On the other hand, if you have significant health issues, sticking with FEGLI could be more cost-effective since you won’t need to qualify through underwriting.
2. Your Family’s Financial Needs
Assess whether your current life insurance coverage adequately protects your family. If your loved ones rely on your pension or other benefits, ensure your plan will cover their needs in case of unexpected events.
3. Cost vs. Benefit
Run the numbers. Compare how much you’re paying for FEGLI premiums versus the death benefit. Then, research other options to see if you can get similar coverage for less.
4. Flexibility
Some private plans allow you to adjust coverage as your needs change. This can be helpful if you foresee reduced insurance needs later in retirement.
Tips for Managing Rising Insurance Costs in Retirement
If switching plans isn’t feasible or desirable, there are other strategies you can use to manage rising FEGLI premiums:
Reduce Your Coverage
Consider reducing your FEGLI coverage levels. For instance, dropping optional coverage (Options A, B, or C) can significantly lower your premiums while still maintaining Basic coverage.
Pair FEGLI with Other Policies
You don’t necessarily have to drop FEGLI entirely. Pairing your FEGLI Basic plan with a smaller private or supplemental policy can balance costs while still providing sufficient protection.
Opt for the 75% Reduction in Retirement
If you retain FEGLI Basic into retirement, you can choose the 75% reduction option. This gradually decreases your coverage after age 65 while eliminating post-retirement premiums. Though the death benefit is reduced, it provides some cost relief.
Should You Keep FEGLI or Look Elsewhere?
The decision to stick with FEGLI or transition to another insurance option is highly personal. If you value convenience and simplicity, and your premiums remain manageable, staying with FEGLI may be the right choice.
However, if you’re concerned about the long-term affordability of FEGLI or want more tailored coverage, exploring alternatives could save you money while still meeting your family’s needs.
Making the Most of Your Life Insurance Decisions
To navigate these complex decisions, consider consulting with a financial advisor or insurance specialist. They can help you evaluate your options, understand the implications of leaving FEGLI, and ensure your insurance aligns with your retirement goals.
Remember, the earlier you begin planning, the more options you’ll have, and the better prepared you’ll be to handle rising costs.
Why Reviewing FEGLI Matters for Your Retirement
Rising FEGLI premiums shouldn’t catch you off guard. By staying proactive and informed, you can adapt your coverage to fit your retirement lifestyle, ensuring peace of mind for you and your loved ones.
