You Might Be Paying Into FEGLI for Nothing If You’re Ignoring This Critical Retirement Detail

Key Takeaways

• Your FEGLI (Federal Employees’ Group Life Insurance) premiums may continue in retirement, but unless you make a deliberate election at separation, you could be overpaying for coverage you don’t need or won’t keep.

• Choosing the wrong reduction option or ignoring the automatic reduction rules after age 65 can result in wasted money or reduced death benefits your survivors were counting on.

Understanding FEGLI at the Retirement Crossroads

As a government employee approaching retirement, you face a series of critical decisions regarding your benefits. FEGLI is one of them. While it has likely served as a convenient and affordable source of life insurance during your working years, its role shifts significantly after you retire. And unless you’re paying close attention, it could quietly turn into a costly oversight.

Let’s walk through what happens to your FEGLI coverage when you retire and the key decisions that will determine whether you continue to get value from it or simply keep paying without a real benefit.

The Basic FEGLI Rules for Retirees

When you retire with at least 5 years of continuous FEGLI coverage, you become eligible to carry your life insurance into retirement. But this isn’t automatic at your current level of coverage, especially when it comes to Optional insurance.

Here are the core features:

• Basic Insurance is continued into retirement automatically if you qualify.

• Option A, B, and C (Optional Insurance) require separate elections at retirement to be carried over.

• You must choose reduction options for Basic and Optional coverage: Full Reduction, No Reduction, or 50% Reduction (for Basic), and None or Full Reduction (for Option B and C).

These decisions determine not just your post-retirement premiums, but also how much coverage remains in place as you age.

Reduction Options and What They Really Mean

Basic Coverage

Upon retirement, you must choose one of the following:

• 75% Reduction (also called Full Reduction):

  • You pay no premiums after age 65 (or retirement, if later).

  • Your coverage reduces by 2% per month starting at age 65 until it reaches 25% of the original value.

• 50% Reduction:

  • You pay reduced premiums for life.

  • Your coverage reduces to 50% of its original value after age 65.

• No Reduction:

  • You continue to pay higher premiums for life.

  • Your full Basic insurance amount stays in place.

Optional Coverage

Option A

• Automatically reduces to $2,500 starting at age 65 (or retirement, if later), with no premium.

Option B and Option C

• You must elect to either keep full coverage or reduce it to zero after age 65.

• If you choose to reduce, coverage decreases by 2% each month until gone, with premiums ending.

• If you choose to keep full coverage, you pay increasingly steep premiums based on your age band.

These reduction elections are permanent and cannot be changed later. Choosing incorrectly could mean losing coverage you wanted to keep or continuing to pay for protection that vanishes later.

Why FEGLI Costs Climb After 65

Premiums for FEGLI Basic insurance under the Full Reduction option are fully subsidized after 65. But if you keep Option B or elect No Reduction for Basic, your premiums rise every 5 years.

As of 2025, retirees aged 65 and older with No Reduction or Optional coverage in place can see costs increase sharply. This is especially noticeable for:

• Option B coverage, which can become hundreds of dollars monthly per multiple of salary.

• Basic insurance with No Reduction, where premiums persist until death at higher rates.

FEGLI pricing is not structured like private insurance with locked-in rates. It’s based on your current age, which means those premiums don’t just stay high—they get worse.

The Cost-Benefit Equation in Retirement

Many retirees opt to keep FEGLI into retirement without revisiting whether it’s still the right fit. But the real question is: Does the cost make sense for the value you (or your beneficiaries) receive?

Some key evaluation points:

• Do you still need this much life insurance?

  • Are your children financially independent?

  • Have you paid off your home and other debts?

  • Is your spouse covered through survivor benefits or your TSP account?

• Is there a more cost-effective option?

  • Private policies (acquired earlier in life) may be more efficient.

  • FEGLI Optional coverage rarely stays affordable into your late 60s and 70s.

• What will your family receive if you die at 80+?

  • With Full Reduction, benefits shrink dramatically.

  • With No Reduction, the payout may stay stable, but at the cost of thousands in extra premiums.

The Most Overlooked Detail: Post-Retirement Reassessment

The real danger with FEGLI is not malicious. It’s inertia.

Many retirees set their elections once and never revisit them. That’s understandable, given how complex federal retirement planning can be. But unlike your pension or Social Security, life insurance is not a guaranteed payout. It only pays if the policy is in force at the time of death.

You could be paying into Option B every month at age 72 and not realize that it’s scheduled to reduce to zero at 80. Or worse, you could think you’re covered for a six-figure death benefit, while the real value is quietly shrinking due to automatic reductions.

You should reassess FEGLI coverage at key milestones:

• Immediately at retirement.

• Every 5 years post-retirement, as premiums rise.

• At major life changes like a spouse’s death, divorce, or children reaching independence.

Survivor Planning Mistakes That Cost Families

Another hidden issue is the assumption that FEGLI alone will protect surviving family members. But that depends on the type and level of coverage you elected to keep.

Failure to:

• Elect a survivor annuity for your spouse.

• Maintain a non-reducing Basic benefit if a death benefit is essential.

• Understand that Option B and C coverage reduce unless elected otherwise.

…can all lead to painful financial surprises.

It’s important to align your life insurance strategy with your overall retirement and estate plan. Life insurance should fill a specific financial gap, not serve as a vague backup plan.

What Happens If You Do Nothing?

If you retire and don’t make specific elections for Optional FEGLI coverage, here’s what happens:

• Your Basic coverage continues and defaults to 75% Reduction.

• Option A automatically reduces to $2,500 at no cost.

• Option B and C terminate unless you elect to continue them with or without reduction.

That means if you don’t act, you may:

• Lose additional multiples of salary in Option B.

• Leave your family with far less than expected.

• Continue to pay for coverage that vanishes by age 80.

FEGLI Reduction Timeline to Watch

To make this crystal clear, here is how the timeline looks post-retirement:

• At Retirement: Must elect reduction choices.

• Age 65: Reduction process begins unless you chose No Reduction.

• Monthly Reductions: At 2% per month over 50 months (Basic and Optional with Full Reduction).

• Age 70 and beyond: Full reductions typically complete.

• After Age 70: You may continue paying full premiums for coverage that never reduced (if No Reduction was chosen).

This reduction process is irreversible and affects the payout your family receives. Paying attention now can prevent an irreversible mistake later.

How to Evaluate Your Coverage Now

To make the right decision:

• Review your FEGLI Retirement Booklet or SF 2818 form.

• Estimate the actual death benefit based on your current age and reduction path.

• Compare it to the total premiums you’ll pay in the next 10 or 15 years.

• Revisit your beneficiary designations to ensure they are current.

Even if you retired years ago, it’s not too late to adjust your financial plan based on the FEGLI choices you already made. Knowing where you stand is more important than locking in a perfect plan upfront.

Make Sure Your FEGLI Benefits Serve Your Retirement Goals

FEGLI is an excellent benefit when understood and managed correctly. But ignoring it or assuming it will function the same in retirement as it did during your working years is a costly mistake.

If you’re unsure what you elected or whether it still fits your needs, speak with a retirement benefits advisor. A few minutes of review could save you thousands or give your loved ones greater peace of mind.

Your next step? Get in touch with a licensed professional listed on this website to walk you through your FEGLI choices and overall retirement strategy.