FEGLI Premiums Are Rising: What Federal Workers Can Do to Keep Costs in Check

Key Takeaways

• FEGLI premiums for federal employees and retirees increase significantly with age, particularly after retirement.

• Strategies such as reevaluating coverage needs and considering alternative financial tools can help manage these rising costs.

Why FEGLI Premiums Are Increasing

If you’ve been keeping an eye on your paycheck or retirement statement, you may have noticed your Federal Employees’ Group Life Insurance (FEGLI) premiums creeping up. For many federal workers and retirees, this isn’t just a small uptick—it’s a noticeable jump, especially as you move into higher age bands. The FEGLI program, while an excellent resource for basic life insurance, bases its premiums on age brackets. With each new bracket, typically every five years, costs increase. For retirees, this can become even more pronounced because you’re no longer paying into your coverage as part of your regular paycheck.

Another factor driving these costs is the program’s structure. FEGLI’s coverage doesn’t build cash value like whole life insurance policies. Instead, it’s pure insurance. The premiums you pay go toward maintaining the benefit, with no return on your investment if you choose to discontinue coverage.

Understanding FEGLI Options

Basic Coverage

Your FEGLI Basic coverage equals your annual salary rounded up to the next $1,000, plus an additional $2,000. The federal government covers one-third of this premium for active employees, making it an affordable choice while working. However, this subsidy disappears in retirement, and you’ll be responsible for the entire cost.

Option A: Standard

This adds a flat $10,000 to your coverage. It’s a simple way to supplement your Basic plan, but the premiums for Option A can rise steeply as you age.

Option B: Additional

Option B allows you to choose up to five times your annual salary in coverage. While it provides substantial protection, it’s also the most expensive option, with premiums tied directly to your age.

Option C: Family

Option C covers your spouse and eligible children. While this can be a valuable add-on, its cost also increases as you age, and the benefit amount remains relatively modest.

The Impact of Retirement on FEGLI Costs

When you retire, the federal government no longer subsidizes your premiums. This means you’ll pay the full amount out of pocket. For Basic coverage, you have options to reduce the amount of coverage as you age, which can lower premiums. However, for Options A, B, and C, you’ll either continue paying full price or let the coverage lapse entirely. This makes it essential to evaluate whether the cost aligns with your financial goals.

Strategies to Manage Rising FEGLI Costs

1. Reassess Your Insurance Needs

Do you still need the same level of coverage you did when you first enrolled in FEGLI? If your children are grown and your mortgage is paid off, you may not need as much life insurance. Consider downsizing your coverage to match your current financial obligations. For example, reducing the multiples on Option B or opting for a lower amount of Basic coverage can help you save.

2. Explore Alternative Insurance Options

Private life insurance policies may offer more competitive premiums, especially if you’re in good health. While FEGLI is convenient and guaranteed without a medical exam, private policies often provide flexibility and additional features. Be cautious, however, to avoid overpaying or selecting a plan that doesn’t align with your needs.

3. Utilize Financial Planning Tools

Instead of relying solely on life insurance, consider setting aside funds in retirement accounts like the Thrift Savings Plan (TSP) or an Individual Retirement Account (IRA). Building a financial safety net can provide peace of mind and reduce the need for high-cost insurance coverage in later years.

4. Opt for FEGLI Reductions at Retirement

Retirees can choose to reduce their Basic coverage by 50% or 75% starting at age 65, with no further premiums required. This option allows you to retain some coverage without ongoing costs, though the benefit amount will decrease over time.

5. Shop Around for Spousal Coverage

If you’ve enrolled in Option C to cover your spouse, evaluate whether they can secure their own life insurance policy. Separate policies may be more cost-effective and offer higher benefit amounts than FEGLI’s spousal coverage.

The Role of FEGLI in a Comprehensive Retirement Plan

Life insurance is just one component of a successful retirement plan. To ensure you’re making the best financial decisions, integrate your FEGLI coverage into a broader strategy. This may include consulting with a financial advisor to balance your insurance, savings, and investment goals. By doing so, you can minimize unnecessary costs while still protecting your loved ones.

What Happens If You Drop FEGLI?

Deciding to reduce or eliminate your FEGLI coverage doesn’t have to mean leaving your family unprotected. If you’ve built sufficient savings or secured other life insurance policies, you can confidently scale back on FEGLI. However, if you let coverage lapse without a backup plan, your loved ones may face financial challenges in the event of your passing. Carefully weigh your options before making changes.

Common Questions About FEGLI

Is FEGLI Coverage Worth the Cost?

The value of FEGLI depends on your personal circumstances. For younger employees, it’s an affordable way to secure substantial coverage. However, as premiums rise with age, it’s essential to reevaluate whether it’s the best option for your needs.

Can I Change My FEGLI Coverage at Any Time?

You can decrease your FEGLI coverage at any time. Increasing coverage, however, usually requires a qualifying life event or an open enrollment period. Keep in mind that changes made during open enrollment may require evidence of insurability.

How Do I Calculate My FEGLI Premiums?

The Office of Personnel Management (OPM) provides premium calculators to help you estimate your costs. These tools consider your age, coverage level, and options selected.

What Happens to My FEGLI If I Leave Federal Service?

If you leave federal service before retirement, you can convert your FEGLI coverage to an individual policy, but this is often costly. Alternatively, you can forgo coverage and seek private insurance.

Steps to Take Today

Managing FEGLI costs doesn’t have to be overwhelming. Start by reviewing your most recent paystub or retirement statement to understand what you’re currently paying. Next, assess whether your current coverage aligns with your family’s financial needs. Finally, explore alternatives and make adjustments as necessary. Staying proactive ensures you’re not caught off guard by rising premiums.

Securing Financial Peace of Mind

Rising FEGLI premiums can feel like a burden, but with a strategic approach, you can manage these costs effectively. By reassessing your coverage, exploring alternatives, and integrating FEGLI into a broader financial plan, you can protect your loved ones without jeopardizing your financial stability. Remember, life insurance is just one piece of the puzzle—a comprehensive plan ensures you’re prepared for whatever comes next.