FEGLI Coverage Choices: Why Dropping Insurance Too Early Can Backfire on Families Counting on Security

Key Takeaways

• Dropping FEGLI coverage too early can leave your family without the financial protection they may rely on during retirement years.

• Understanding timelines, premium changes, and survivor benefit rules helps you avoid mistakes that could backfire later.

Why Timing Matters for FEGLI Coverage

Federal Employees’ Group Life Insurance (FEGLI) is designed to give you and your family financial security. While it feels like a manageable deduction from your paycheck during your career, decisions about whether to keep or drop it in retirement have long-term consequences. Once you give up coverage, regaining it is not an option. This makes timing one of the most important factors you need to evaluate carefully.

Many retirees make the choice to drop FEGLI too soon after leaving federal service. They assume that lower expenses or other savings will carry them through. Yet as the years pass, your family may still depend on that coverage, especially if unexpected health care costs, debt, or survivor needs appear.

Premiums That Rise as You Age

A major factor in whether to continue coverage is the cost. FEGLI premiums are structured to increase with age. For active employees, your agency pays a significant portion of Basic coverage. But once you retire, you take on the full premium. That means your monthly cost will depend on the coverage options you choose and your age bracket.

For many, the jump in premiums around age 65 is the most shocking. Costs can escalate sharply at five-year intervals. If you maintain Option B or Option C coverage, the increases can become significant. By contrast, the Basic coverage can be continued into retirement with reduced costs if you qualify for the 75 percent reduction option, though this also lowers the benefit amount.

Understanding these increases and factoring them into your long-term retirement budget helps you avoid unpleasant surprises. If you drop coverage too early to save money, you may find yourself without protection when your family needs it most.

Survivor Needs Do Not Vanish in Retirement

One of the most overlooked aspects of FEGLI is how it supports survivors. If your spouse or dependents rely on your pension or retirement benefits, the life insurance payout can be the buffer that helps them adjust financially after your death. Survivor benefits from your annuity may not be enough on their own.

Even if your mortgage is paid off and your children are financially independent, consider medical bills, long-term care expenses, or funeral costs. FEGLI coverage can prevent your survivors from being forced to use savings or sell assets at a difficult time.

Dropping coverage too early assumes those needs vanish once you retire, but the truth is they can shift or even grow as you age.

Rules You Cannot Reverse

FEGLI rules limit your flexibility. Once you cancel coverage, you cannot simply reapply in retirement. Unlike private life insurance, which allows new applications, FEGLI is tied to your federal employment history. This makes your decision final.

The only exception occurs during rare open enrollment periods, which do not happen often and are not guaranteed. If you assume you can get back in later, you may be left without options.

This one-way rule is why dropping FEGLI too soon can backfire. You need to evaluate your decision in light of your family’s future financial security, not just your current monthly budget.

Weighing FEGLI Against Other Retirement Benefits

Your retirement package is a blend of multiple benefits: the FERS annuity, Social Security, the Thrift Savings Plan, FEHB health coverage, and FEGLI. Each piece serves a purpose, but they do not all replace each other.

Some retirees believe their TSP account will serve as insurance for their spouse or family. But market fluctuations and required minimum distributions can make those funds unreliable for covering survivor needs. Social Security survivor benefits may not be sufficient, particularly if your spouse did not work enough quarters to qualify for their own benefit.

This is where FEGLI provides an additional layer of stability. While it should not replace long-term savings, it can work as a guaranteed cushion that arrives when your family needs it most.

Budgeting for the Rising Costs

You cannot ignore that FEGLI costs rise as you age. By planning in advance, you can decide how long to maintain higher coverage levels and when to transition to reduced options.

For example, many retirees plan to carry full Option B coverage until their mid-60s, then reduce or drop it while keeping Basic coverage with the 75 percent reduction. This balances cost with continued protection. But such decisions must be made proactively, not under financial pressure.

You should look at your retirement income sources in detail: pension amounts, Social Security, TSP withdrawals, and other savings. Align these with projected FEGLI premiums so you know exactly what tradeoffs you face.

How Age 65 Becomes a Turning Point

Age 65 is often when retirees face the toughest choices. This is not only the age when FEGLI premiums can jump, but also when Medicare enrollment begins and other retirement costs shift. Healthcare, prescription drugs, and long-term care can become bigger financial priorities.

If you wait until after 65 to review your FEGLI coverage, you may find your budget squeezed on multiple fronts. Making the decision earlier, with a clear plan, prevents you from dropping coverage suddenly at a time when you may still need it.

Protecting Your Spouse and Dependents

FEGLI is often most valuable as protection for a surviving spouse. Even if you elect a survivor annuity from your FERS pension, that may only provide a fraction of your monthly income. The life insurance payout can cover gaps in income or provide liquidity to pay immediate expenses.

If you have dependent children or disabled family members, FEGLI coverage becomes even more important. Dropping coverage too soon leaves them vulnerable to financial hardship. Before making a decision, calculate the ongoing needs of your spouse and dependents, not just the one-time costs.

Considering Reduction Options

FEGLI offers reduction options that allow you to carry some coverage at reduced cost in retirement. For Basic coverage, you can elect:

• 75 percent reduction (benefit reduces gradually, premium lowers)

• 50 percent reduction (partial coverage remains, moderate premium)

• No reduction (full coverage continues, higher premium)

Each choice comes with tradeoffs. Selecting a reduction option allows you to preserve coverage for your family without carrying the full premium burden. But choosing too steep a reduction too early can limit the financial security your family counts on.

Questions to Ask Before Dropping FEGLI

When weighing whether to drop coverage, consider these questions:

1. Does my spouse depend on my pension for income, and how much would they receive after my death?

2. Do I have other assets that can cover medical bills, funeral expenses, and ongoing support?

3. What is the cost of my FEGLI premiums at my current age, and how will they change at the next five-year bracket?

4. Have I reviewed my options for Basic reduction, rather than canceling coverage entirely?

5. If I drop coverage, am I comfortable knowing I cannot reinstate it later?

Answering these honestly gives you a clear picture of whether your family can afford to lose this protection.

The Long-Term View of Family Security

The decision to drop or keep FEGLI is not just about saving money in your budget today. It is about ensuring your family’s financial stability over the next 10, 15, or even 20 years of retirement. Your survivors will live with the outcome of your decision long after you are gone.

Keeping coverage until you are certain your family no longer depends on it avoids regrets. Life events, health changes, and financial setbacks can happen suddenly. By holding onto coverage until you are confident of long-term stability, you reduce the risk of leaving your family unprotected.

Making Your Coverage Decision Count

When it comes to FEGLI, every choice is permanent and every tradeoff has consequences. By taking time to evaluate your premiums, survivor needs, and reduction options, you can make a decision that supports both your retirement comfort and your family’s financial security.

Protecting Your Family’s Future

Your FEGLI coverage is more than a line on your retirement budget. It is a commitment to the security of your spouse, children, or other dependents. Dropping it too early can undo years of careful financial planning. To ensure you make the right choice, get in touch with a licensed agent listed on this website for advice tailored to your situation.