FEGLI Coverage After Retirement

You can choose between two Federal Employees’ Group Life Insurance (FEGLI) schemes as a retiree. The first step is to prioritize which perks are worth keeping. The second consideration is how much you are willing to spend on them.

It is vital to remember that the instant you become a federal employee, your Basic insurance coverage kicks in unless you opt-out. The coverage is known as Option A, which provides a set amount of life insurance coverage. For example, suppose you pass away while employed by the federal government. In that case, Option A would provide your family with financial security. 

The policy provider will calculate your insurance premiums by rounding your annual pay (before taxes and retirement deductions) to the closest $1,000 and subtracting another $2,000. For example, if your annual pay is $50,000, your premiums would be based on $48,000 ($50,000 – $2,000). It’s important to note that this is just an example and that actual premiums may vary depending on your circumstances.

As your Basic Pay rises, so will the amount of your coverage. The government will cover two-thirds of your premiums, and the remaining third will be up to you.

At retirement, you can choose between a 75% reduction in your Basic insurance, a 50% reduction, or keeping the same coverage as before.

If you elect to receive the 75% discount, your premiums for that coverage will remain the same as when you were an employee, and they will stay the same until you reach age 65. After age 65, you are no longer required to pay premiums. After that, however, your Basic insurance will lose 2% of its monthly value until it is worth 75% of its original cost.

If you select the 50% reduction, its value will reduce by 1% each month until it is worth 50% less than it was initially. You’ll have to pay more each month for that level of service. The premiums will increase much more if you decide to forego the discount. It would be best to calculate the immediate and long-term costs of going with either the 50% or no reduction plan.

Apart from the minimal minimum of Basic coverage, there are three categories of life insurance. First, after you retire, they go through the following steps.

Plan A: Standard Insurance

If you purchased this insurance policy for a lump sum of $10,000, your premium payments would finish at the end of the month you turn 65. Once your Option A insurance hits 25% of its face value, it will decrease by 2% monthly.

Choice B – Additional Insurance

With Option B, your coverage would increase by an additional $1,000 per year on top of your annual salary. When you retire, your prior insurance will continue to apply. However, if you do, the premiums for your coverage will increase as you age, and you will be responsible for paying the entire policy cost.

At age 65, you can reduce the number of multiples or the monetary value of the coverage by 2% per month for 50 months or until the price is zero.

Option C: Family

Using Option C, you can cover your spouse and qualifying dependent children at your own cost. You can select multiples of the family coverage amount. Like Option B, each multiple equals $5,000 for your spouse and $2,500 for your children. To calculate the total price, multiply the premium multiple by your age.

When you reach age 65, your coverage automatically becomes free. Unfortunately, it will decrease by 2% per month for 50 months until it hits zero. In other words, if you sign up for FEGLI at age 65, your coverage will decrease by 2% per month until it is entirely gone by the time you turn 70.

It’s important to note that this reduction in coverage only applies to basic coverage. The reduction will not impact your supplementary or optional coverage if you choose.

One last thing

If you’re looking for affordable life insurance, FEGLI is a fantastic option. However, you can also choose another possibility. Besides the government-sponsored Thrift Savings Plan (TSP) and the more speculative stock market and bond markets, private life insurance is another avenue to save for retirement. Please avoid delaying decision-making till the very last moment. Since then, it will be too late.

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