FEGLI in Retirement: What Happens to Your Coverage When You Leave Federal Service?

Key Takeaways

1. Your Federal Employees’ Group Life Insurance (FEGLI) coverage undergoes significant changes when you transition into retirement, impacting your premiums and available options.

2. Understanding your post-retirement FEGLI options is essential to maintaining adequate life insurance coverage without unnecessary costs.

What Happens to FEGLI When You Retire?

When you retire from federal service, your Federal Employees’ Group Life Insurance (FEGLI) coverage doesn’t just disappear—but it does change. FEGLI, the largest group life insurance program in the world, provides federal employees with essential life insurance protection during their careers. But when you step into retirement, the coverage shifts, and so do the rules surrounding it.

Understanding these changes is crucial to making informed decisions about whether to keep your FEGLI coverage, reduce it, or opt-out altogether. Let’s break down what happens and how to navigate these decisions.

Eligibility for Continuing FEGLI into Retirement

To continue FEGLI coverage after retirement, you must meet certain requirements:

1. Five-Year Rule: You must have been enrolled in FEGLI for at least five years immediately before your retirement or for the full period of service during which FEGLI was available.

2. Retirement Type: Your retirement must be immediate—not deferred or postponed.

3. Enrollment at Retirement: You must carry the same level of FEGLI coverage into retirement as you had on your last day as a federal employee.

If you meet these conditions, you’re eligible to continue FEGLI coverage in retirement, but it comes with specific choices you’ll need to make.

Your Coverage Options in Retirement

Upon retirement, you’ll need to decide how much of your FEGLI Basic and optional coverage to keep. Let’s explore the choices:

Basic Coverage

FEGLI Basic coverage is the foundation of the program. In retirement, you can choose from the following options:

• 75% Reduction: The coverage reduces by 2% per month starting at age 65 until it reaches 25% of its original value. No premiums are required for this reduced coverage after age 65.

• 50% Reduction: The coverage reduces by 1% per month until it reaches 50% of its original value. You’ll pay a reduced premium in retirement.

• No Reduction: The coverage remains at 100% of its original value. You’ll continue paying the full premium, which increases with age.

Optional Coverage

If you’ve opted for additional FEGLI coverage beyond Basic, these options also change in retirement:

1. Option A (Standard): Provides $10,000 in additional coverage. This coverage begins reducing at age 65 by 2% per month until it’s completely phased out. No premiums are required after age 65.

2. Option B (Additional): Allows you to add coverage in multiples of your annual salary. At retirement, you can elect a 100% reduction, which phases out the coverage by age 65, or retain partial coverage by continuing to pay premiums.

3. Option C (Family): Covers your spouse and eligible children. Similar to Option B, you can choose to keep or reduce this coverage based on your retirement needs.

Costs of FEGLI in Retirement

As you age, FEGLI premiums for some options can rise significantly. Basic coverage with a 75% reduction becomes free at age 65, but other choices, such as No Reduction for Basic or retaining Options B and C, can lead to higher costs. These premiums are deducted from your annuity, so it’s important to assess whether the benefits justify the expense.

Alternatives to FEGLI

FEGLI isn’t the only life insurance option for retirees. Depending on your needs, you might consider:

• Private Life Insurance: Many retirees explore term or whole life policies. These can offer more tailored coverage, although they may be more expensive if purchased later in life.

• Self-Insurance: If you have sufficient savings or other assets, you might not need life insurance at all.

Comparing costs and coverage levels is key to determining whether to keep FEGLI or transition to another option.

Factors to Consider Before Making Changes

When deciding on your FEGLI coverage in retirement, consider these factors:

1. Financial Needs: Assess how much life insurance your beneficiaries will require. Will your retirement savings cover their needs, or do you need additional protection?

2. Premium Affordability: Can you afford rising premiums for No Reduction Basic or Optional coverage? Consider how these costs will affect your retirement budget.

3. Health Status: If you’re in good health, private insurance might offer better rates than FEGLI. If not, keeping FEGLI may be the more cost-effective choice.

4. Family Situation: Spousal and dependent needs can influence your decision. For example, Option C might be worth retaining if you have young children or a spouse relying on your support.

How to Make Your Elections

You’ll make your FEGLI elections during your retirement process by completing the required forms through your HR office or retirement system. Be sure to:

• Review your current coverage and premiums.

• Compare the costs of retaining versus reducing coverage.

• Consult with a benefits counselor or financial advisor if you’re unsure about your choices.

Managing FEGLI After Retirement

Once you’ve retired, it’s important to stay on top of your FEGLI coverage:

• Check Premium Deductions: Ensure the correct amounts are being deducted from your annuity.

• Update Beneficiaries: Life events like marriage, divorce, or the birth of a child may warrant changes to your beneficiary designations.

• Reassess Periodically: As your financial situation evolves, revisit your life insurance needs to ensure your coverage remains appropriate.

Common Mistakes to Avoid

1. Failing to Meet the Five-Year Rule: If you’re nearing retirement, ensure you’ve been enrolled in FEGLI for at least five consecutive years.

2. Underestimating Premium Increases: Rising costs can strain your budget, so plan accordingly.

3. Neglecting Beneficiary Updates: Outdated designations can lead to complications or unintended payouts.

4. Skipping Alternatives: Explore private insurance or other options before committing to FEGLI in retirement.

Why FEGLI Matters

FEGLI offers unique advantages for federal retirees, including guaranteed acceptance without medical exams and coverage flexibility. However, it’s not a one-size-fits-all solution. By understanding your options and evaluating your needs, you can make the most of this valuable benefit while ensuring your loved ones are protected.

Making the Right Choice for Your Future

Deciding on FEGLI coverage in retirement requires thoughtful consideration of your financial needs, family situation, and long-term goals. Take the time to evaluate your options, consult with professionals if needed, and make informed choices that align with your retirement plan. Your decisions today will ensure peace of mind for you and your beneficiaries in the years to come.