FEGLI Costs Are Rising Again—Here’s What to Do About Your Life Insurance in Retirement

Key Takeaways

1. FEGLI costs rise sharply in retirement, making it essential to evaluate your coverage needs and explore alternatives.

2. Balancing FEGLI with other life insurance options can ensure your family’s financial security without overpaying.

FEGLI Costs Are Rising—Should You Keep It in Retirement?

The Federal Employees’ Group Life Insurance (FEGLI) program provides valuable life insurance coverage during your federal career, but its costs increase significantly in retirement. If you’re already noticing the steep jump in premiums, you’re not alone. Many retirees struggle to justify the higher expense as they age, prompting the question: Should you keep FEGLI in retirement, or is it time to explore other options?

Understanding FEGLI Basics

FEGLI offers four types of coverage:

1. Basic Coverage: Automatically provided to most federal employees, covering annual salary plus $2,000.

2. Option A: Adds an extra $10,000.

3. Option B: Allows you to choose coverage up to five times your salary.

4. Option C: Covers eligible family members.

While FEGLI provides flexibility, the escalating premiums in retirement can put a dent in your budget. Let’s dive into what happens to your costs when you retire.

FEGLI Premiums in Retirement—Why the Increase?

When you’re an active federal employee, the government subsidizes a portion of your FEGLI premiums. However, this subsidy ends once you retire, leaving you responsible for the full cost. Premiums for Basic coverage remain relatively stable up to age 65 if you choose a 75% reduction in benefit, but beyond that, your costs can increase depending on the coverage options you maintain. For Option B, the premiums grow sharply as you age, often doubling every five years after retirement.

Balancing FEGLI Costs with Coverage Needs

Retirement often brings a shift in your life insurance priorities. Here’s how to reassess your needs:

1. Evaluate Financial Dependents: Are you providing financial support to a spouse, children, or other family members?

2. Consider Outstanding Debts: Do you have a mortgage or other significant liabilities?

3. Review Retirement Savings: Could your Thrift Savings Plan (TSP) or other investments cover your family’s needs?

If your dependents are financially independent and your debts are minimal, you might not need the same level of coverage as you did during your working years.

Exploring Alternatives to FEGLI

If the rising premiums have you reconsidering FEGLI, here are some alternatives:

Term Life Insurance

Term life insurance offers a fixed premium for a set period, such as 10, 20, or 30 years. This type of policy can be a cost-effective alternative to FEGLI, especially if you need coverage during the early years of retirement when financial obligations may still exist.

Permanent Life Insurance

Permanent life insurance, such as whole or universal life, provides lifelong coverage with the added benefit of building cash value. While typically more expensive than term insurance, it can be an appealing option for those seeking long-term security.

No-Cost or Low-Cost Options

If you’re enrolled in Basic FEGLI with the 75% reduction option, you’ll retain some level of coverage at no additional cost after age 65. This option can provide a small financial cushion without requiring ongoing premium payments.

Tips for Managing Life Insurance in Retirement

Managing life insurance doesn’t have to be overwhelming. Follow these tips to make the most of your coverage:

1. Shop Around Early: Start exploring alternatives before retirement. Securing a private life insurance policy becomes harder and more expensive as you age or if your health declines.

2. Understand Your Benefits: Contact your HR office or the Office of Personnel Management (OPM) to clarify your current FEGLI options and costs.

3. Adjust Your Coverage: If you no longer need full coverage, reduce your FEGLI benefits to a level that aligns with your needs.

4. Consult a Financial Advisor: An advisor can help you balance life insurance costs with your overall retirement plan.

Coordinating Life Insurance with Retirement Benefits

Your federal retirement benefits—such as the FERS pension, TSP, and Social Security—can influence your life insurance needs. For instance, a robust TSP balance might reduce the need for extensive life insurance coverage, while a smaller pension might necessitate keeping higher coverage levels to protect your loved ones.

Consider these factors when deciding:

1. Pension Survivors’ Benefits: If you’ve opted for a survivor benefit for your spouse, your pension will provide some income security after your death.

2. Health Care Costs: FEHB coverage can mitigate the financial impact of healthcare expenses on your family, reducing the need for additional insurance.

3. Estate Planning: If you want to leave a financial legacy, life insurance can complement your retirement accounts and other assets.

The Importance of Reassessing Periodically

Life circumstances change, and so do your insurance needs. Regularly reassess your coverage—ideally every few years or after major life events like a new grandchild, the death of a spouse, or significant changes in your financial situation. Adjusting your coverage ensures that it continues to serve your goals without straining your retirement budget.

Avoid Common Pitfalls

1. Overinsuring: Paying for more coverage than you need can drain your resources.

2. Delaying Decisions: Waiting too long to explore alternatives may limit your options due to age or health conditions.

3. Ignoring Costs: Underestimating how premiums will rise can lead to unpleasant surprises.

Making Your Final Decision

Deciding whether to keep, adjust, or replace your FEGLI coverage requires careful consideration. By weighing the costs, benefits, and alternatives, you can make a decision that aligns with your financial goals and protects your loved ones.

Remember, there’s no one-size-fits-all answer. The right choice depends on your unique financial situation, family needs, and long-term plans. Take the time to explore your options and make an informed decision.

Planning for Financial Security Beyond FEGLI

Life insurance is just one piece of the retirement puzzle. A comprehensive strategy should include managing healthcare, maximizing your retirement savings, and minimizing unnecessary expenses. Consider integrating these components into your financial plan for a secure and fulfilling retirement.