Why Reviewing Your FEGLI Policy Could Save You Thousands in Retirement

Key Takeaways

• Your Federal Employees’ Group Life Insurance (FEGLI) policy might not be as cost-effective as you think, especially in retirement. A review now can lead to significant savings.

• Understanding your FEGLI coverage options and making adjustments based on your current needs ensures you’re not overpaying for unnecessary benefits.

Are You Paying Too Much for FEGLI?

FEGLI is one of the most widely utilized life insurance programs for federal employees and retirees. While it offers valuable protection during your working years, the story can change drastically as you transition into retirement. Premiums often increase significantly with age, leaving you wondering if the coverage you signed up for years ago is still worth the cost.

If you’re approaching retirement or already there, it’s essential to review your FEGLI policy now. You could be overpaying for coverage you no longer need or missing out on more affordable options tailored to your current stage in life.

How FEGLI Works: A Quick Recap

FEGLI offers federal employees four types of coverage:

1. Basic Coverage: This is the default coverage you’re automatically enrolled in unless you opt out. It’s equal to your annual basic pay, rounded up to the nearest $1,000, plus an additional $2,000.

2. Option A (Standard): Provides $10,000 in additional coverage.

3. Option B (Additional): Allows you to purchase up to five times your annual basic pay in extra coverage.

4. Option C (Family): Covers your spouse and eligible children.

Premiums for Basic Coverage are partly subsidized by your employer during your active years, but you’re responsible for the full cost of any optional coverage. Once you retire, the costs for Basic and optional coverages can increase dramatically, especially for Options B and C.

Why Retirement Changes the Game

When you’re employed, FEGLI premiums are relatively affordable, thanks to government contributions. However, after retirement, you’ll likely bear the full cost of your coverage. Here are some critical considerations:

• Rising Premiums: Premiums for optional coverages (A, B, and C) escalate with age. For retirees in their 60s, 70s, and beyond, these increases can become burdensome.

• Reduced Need for Coverage: Once you’re no longer providing for dependents or have fewer financial obligations, you may not need as much life insurance.

• Other Retirement Expenses: Higher FEGLI costs can eat into your fixed retirement income, leaving less for essential expenses like healthcare or leisure.

If you’re unaware of how much your premiums will increase after retirement, you might face an unpleasant surprise. Understanding these changes now can help you make informed decisions.

Evaluating Your Current Coverage

To determine whether your FEGLI policy still aligns with your needs, ask yourself:

1. What Are My Current Financial Obligations?

   • Are you still supporting dependents?

   • Do you have a mortgage or other significant debts?

2. What Assets Have I Accumulated?

   • Are your savings, pensions, or other investments sufficient to cover expenses for your loved ones?

3. What Are My Retirement Plans?

   • Do you plan to travel extensively or focus on other pursuits that may require financial resources?

Reviewing these factors will help you determine how much life insurance coverage you actually need, if any. Many retirees find they can scale back their coverage, resulting in substantial savings.

Options for Reducing FEGLI Costs

If you find that your FEGLI coverage no longer fits your needs, there are several ways to reduce costs:

1. Drop Optional Coverages

Options B and C are often the first places retirees look to cut costs. Dropping these coverages can save you hundreds or even thousands of dollars annually. For instance:

• Option B: If you no longer have dependents who rely on your income, you may not need this additional coverage.

• Option C: If your children are grown and your spouse has their own financial resources, this coverage might be unnecessary.

2. Reduce Your Basic Coverage

Basic FEGLI coverage can be reduced or even eliminated in retirement. However, if you choose to retain it, you can opt for a reduced paid-up option, which lowers the coverage amount but eliminates future premium costs.

3. Shop for Alternatives

While private plans are not always the best solution, exploring other options might help you find a plan better suited to your needs. Consider the cost, coverage, and flexibility of alternative policies.

4. Use FEGLI’s Open Season

FEGLI Open Season, held occasionally, allows employees to make changes to their coverage without undergoing a medical exam. If you’re still eligible for Open Season, it’s an excellent time to reassess your policy.

The Role of Survivor Benefits

Survivor benefits can play a significant role in your retirement planning. If your spouse or dependents will receive a survivor annuity from your federal pension, you may not need as much life insurance.

Key points to consider:

• Coordinating Benefits: Ensure your life insurance complements, rather than duplicates, the survivor benefits your loved ones will receive.

• Long-Term Needs: Factor in ongoing expenses like healthcare or education for dependents.

Frequently Asked Questions About FEGLI in Retirement

1. Can I Keep FEGLI in Retirement?

Yes, but you must meet specific criteria. You need to have been continuously enrolled in FEGLI for the five years preceding retirement or since your earliest opportunity to enroll.

2. How Do Premiums Change After Retirement?

FEGLI premiums for optional coverages increase significantly with age. Basic Coverage offers a 75% reduction option, which lowers coverage but eliminates premiums after age 65.

3. Is It Worth Keeping FEGLI?

This depends on your individual needs. If you no longer require as much coverage or find the premiums too high, reducing or canceling your coverage may be the best move.

Steps to Review Your Policy

Taking the time to review your FEGLI policy can lead to considerable savings. Here’s how to get started:

1. Access Your Policy Details: Log into your agency’s benefits portal or contact your HR office to obtain your FEGLI coverage and premium information.

2. Calculate Future Costs: Use the FEGLI calculator available online to estimate how your premiums will change over time.

3. Compare Your Needs: Match your current financial situation with your life insurance coverage.

4. Consult a Benefits Specialist: If you’re unsure about your options, a specialist can help you weigh the pros and cons of different strategies.

5. Make Adjustments: Whether it’s reducing coverage, opting for the paid-up option, or exploring alternatives, make changes that align with your retirement goals.

The Financial Impact of Staying Informed

Ignoring your FEGLI policy could cost you thousands of dollars over the course of your retirement. By proactively reviewing your coverage, you ensure you’re not overpaying for insurance you no longer need. These savings can be redirected toward other priorities, such as:

• Enhancing your quality of life in retirement.

• Supporting your family or charitable causes.

• Building an emergency fund for unforeseen expenses.

Why It’s Never Too Late to Act

Even if you’ve already entered retirement, it’s not too late to review and adjust your FEGLI coverage. Start today by gathering your policy details and assessing whether it aligns with your current needs. A few adjustments could result in significant financial relief.

Protect Your Retirement Savings by Reviewing Your Policy

FEGLI is an essential benefit for federal employees, but it’s not a one-size-fits-all solution. As your circumstances change, so should your insurance coverage. By taking the time to review your policy and make necessary adjustments, you ensure that you’re not wasting money on coverage you don’t need. The sooner you act, the more you stand to save.