FEGLI in Retirement: Pros & Cons of FEGLI Coverage Options for Federal Retirees
Key Takeaways
- FEGLI coverage rules change at retirement, impacting costs and available options for federal retirees.
- Reviewing coverage, premium adjustments, and reduction choices is essential for informed decisions about FEGLI post-retirement.
Many federal retirees are surprised by how FEGLI coverage—and its associated costs—change after leaving government service. If you’ve participated in the Federal Employees’ Group Life Insurance program, understanding your post-retirement options is essential to planning your financial future. Here’s what you need to know to confidently evaluate your next steps.
What Is FEGLI in Retirement?
Overview of FEGLI Basics
The Federal Employees’ Group Life Insurance (FEGLI) program is the primary life insurance plan for federal employees. It covers most employees during their careers, offering basic life insurance and, for those who choose, additional coverage options. FEGLI is entirely administered by the U.S. Office of Personnel Management (OPM).
Basic coverage is typically automatic for eligible federal workers, providing a death benefit based on salary. Optional coverage choices (Options A, B, and C) can increase the benefit amount or extend coverage to family members. Premiums are generally withheld from paychecks during active federal service.
How FEGLI Changes at Retirement
At retirement, your participation in FEGLI does not automatically end. However, the program’s rules for coverage, premiums, and available options can shift, sometimes significantly. What you choose at retirement determines your post-retirement life insurance costs, coverage amounts, and how much your beneficiaries might eventually receive.
How Does FEGLI Coverage Work After Retiring?
Eligibility Requirements After Federal Service
To keep FEGLI coverage in retirement, you must meet specific criteria. According to OPM, you generally need to:
- Retire on an immediate annuity;
- Be insured under FEGLI for the five years immediately before your retirement, or from your first chance to enroll if less than five years;
- Not convert to an individual policy at retirement.
Meeting these rules means you can continue some or all of your FEGLI coverage. Otherwise, coverage is typically discontinued upon retirement.
Basic Coverage vs. Optional Coverage Explained
After retirement, FEGLI Basic coverage can remain in effect, subject to certain reduction and premium rules. Optional insurance (Options A, B, and C) can also continue, but typically with more limited choices and often higher costs relative to when you were an active employee. You’ll need to decide which combinations of coverage and reduction schedules suit your needs and budget.
What FEGLI Options Exist for Federal Retirees?
Available Coverage Reductions
Federal retirees have a range of options for adjusting their life insurance coverage. For FEGLI Basic, most retirees can choose among reduction options:
- 75% Reduction: Coverage reduces by 2% per month beginning at age 65 (or retirement, if later) until it reaches 25% of the original amount. After reductions are complete, premiums for Basic insurance stop.
- 50% Reduction: Coverage reduces by 1% per month until it reaches 50% of the starting amount. Premiums continue but are lower than the no-reduction choice.
- No Reduction: Coverage never lowers but retiree premiums remain higher for life.
Optional coverages (A, B, and C) each have their own reduction and continuation schedules. For example, Option B and C coverage can be reduced by 2% each month starting at age 65 until they end, unless you pay additional premiums to keep them.
Premium Adjustments Post-Retirement
While active, FEGLI premiums for Basic coverage are largely fixed as a percentage of salary, and optional coverage rates rise in five-year age bands. In retirement, these premiums may change based on the reduction option you elect. The lower the coverage you keep, the less you pay. If you keep more coverage, premiums may become a much larger monthly expense, especially at older ages.
What Are the Pros of Keeping FEGLI?
Continuation of Federal Group Coverage
FEGLI is a group policy backed by the federal government, so you are part of a large pool with access to the same terms as fellow retirees. For those who qualify, retaining FEGLI in retirement ensures continuity of benefits and access to federal group life insurance without needing to secure new policies on the open market.
No Medical Exam in Retirement
One significant advantage of FEGLI is that keeping your insurance doesn’t require a new health exam at retirement. If you meet the eligibility criteria, you can maintain your coverage regardless of current health conditions. This feature can offer peace of mind, particularly if you might have difficulty qualifying for similar coverage elsewhere.
What Are the Cons of Keeping FEGLI?
Potential Increases in Premium Costs
FEGLI premiums, especially for optional coverage, can become more expensive as you age. Unlike Basic coverage, which may terminate premiums with a 75% reduction, keeping full or high Optional coverage often means ongoing, and sometimes rising, monthly costs throughout retirement.
Possible Reduction in Coverage Amounts
Unless you choose (and pay for) the no-reduction options, your level of life insurance will likely decrease over time. The automatic reductions can be substantial, especially for those who elect the standard 75% reduction. This may result in a much lower death benefit for beneficiaries when the time comes.
Can You Change or Remove FEGLI After Retirement?
Rules for Reducing or Cancelling Coverage
FEGLI gives federal retirees flexibility to reduce or cancel their coverage, even after retirement. You can:
- Decrease your overall coverage
- Cancel all or part of your optional coverages
Once coverage is cancelled, you cannot restore it in the future. This makes the decision important to evaluate carefully.
How Changes Influence Future Benefits
Lowering coverage or canceling options immediately impacts the benefit your beneficiaries would receive. Maintaining a higher level of coverage means higher premiums; reducing it can save costs but also lowers future benefits. Review your needs closely to see what balance feels right for your circumstances.
What Happens to FEGLI If You Do Nothing?
Automatic Reduction Schedules
If you take no action at retirement, FEGLI Basic coverage defaults to the 75% reduction schedule: coverage decreases each month up to the required minimum. Optional coverages typically reduce to zero unless you make an election to keep them.
Effect on Beneficiaries
Automatic reductions diminish the amount your beneficiaries receive. If the final benefit amount will be important to your survivors, reviewing these schedules ahead of time helps you avoid surprises later and allows you to make informed choices.
How Should Federal Retirees Evaluate FEGLI?
Key Considerations for Coverage Decisions
When deciding on FEGLI coverage in retirement, think about your overall financial picture, your health, and the needs of those who might depend on your benefit. Assess whether the remaining coverage meets your legacy or financial security goals.
Reviewing Cost vs. Benefit Factors
Weigh the premiums you’ll pay against the actual coverage provided. FEGLI’s reduction schedules and cost structure mean that what seems like ample coverage today may change over time. Revisit your needs regularly to ensure the program remains the right fit as your circumstances evolve.
