Key Takeaways:

1. More retirees are reconsidering FEGLI (Federal Employees’ Group Life Insurance) as they evaluate its long-term value, especially in light of increasing costs.

2. Reviewing your life insurance needs and understanding alternative options can help ensure your policy is still the right fit for your retirement.

Why More Retirees Are Reconsidering FEGLI: Is Your Life Insurance Still a Good Deal?

As the landscape of federal employee benefits shifts, many retirees are taking a fresh look at their Federal Employees’ Group Life Insurance (FEGLI) coverage. Once seen as a reliable and affordable option, FEGLI is now under scrutiny due to rising premiums and other changing factors. The question many retirees face is whether the life insurance they’ve had for years still offers the protection and value they need. Let’s explore why retirees are reconsidering FEGLI and how to assess if your coverage is still a good deal.

Understanding FEGLI: The Basics

The Federal Employees’ Group Life Insurance program, commonly referred to as FEGLI, has provided life insurance to federal employees since 1954. It is a term life insurance policy, meaning it offers coverage as long as premiums are paid but does not accumulate cash value like whole life policies. FEGLI is divided into several options:

• Basic Insurance: This provides coverage equal to an employee’s annual salary rounded to the next $1,000, plus an additional $2,000.

• Optional Insurance: Employees can choose to increase coverage through three options: Option A (an additional $10,000), Option B (1-5 times annual salary), and Option C (coverage for family members).

Federal employees have long been drawn to FEGLI for its convenience—premiums are deducted from their paycheck—and because no medical exam is required to enroll. However, as premiums increase with age, particularly for optional coverage, many retirees are reconsidering whether FEGLI is still the best choice for their life insurance needs.

Why Are Retirees Re-Evaluating FEGLI?

1. Increasing Premiums After Retirement

One of the most significant factors pushing retirees to rethink their FEGLI coverage is the rising cost of premiums, especially as they age. While premiums for Basic coverage remain relatively stable until retirement, rates for Optional insurance (especially Option B) can increase substantially over time. In some cases, retirees may see their premiums for Optional coverage double or triple in their 60s and beyond.

This can be particularly burdensome for those living on a fixed income. Retirees may find that the coverage they once thought was affordable during their working years is now a financial strain.

2. Longer Life Expectancy

With advancements in healthcare, retirees are living longer than ever. While this is undoubtedly positive, it also means that retirees need to plan for a much longer retirement than previous generations. As people live longer, their financial priorities may shift. Life insurance coverage that seemed sufficient when planning for a shorter retirement may no longer meet their needs. Retirees may begin to explore alternative coverage options that provide more flexibility or cash value over time.

3. Better Understanding of Life Insurance Needs

Another reason retirees are reconsidering FEGLI is that their life insurance needs may have changed since they first enrolled. Many federal employees initially signed up for FEGLI decades ago when they were just starting their careers. Over the years, their financial situation, family dynamics, and goals have evolved. As a result, retirees may realize that their life insurance needs have shifted, and FEGLI no longer provides the coverage they truly require.

For instance, a retiree who no longer has dependents or a mortgage may not need the same level of coverage they did in their 30s or 40s. In contrast, others may find they need additional coverage to leave a legacy for their family or to cover estate taxes. Understanding these changes and reassessing life insurance needs is crucial for making informed decisions about FEGLI.

Alternatives to FEGLI: What to Consider

As retirees re-evaluate their FEGLI coverage, many are looking into alternative life insurance options. Here are a few considerations when exploring alternatives:

1. Individual Term Life Insurance

For retirees who want to maintain term life coverage but at a potentially lower cost, an individual term life policy may be worth exploring. Depending on the policy and the retiree’s health, it may be possible to secure similar or even better coverage for less than the escalating premiums of FEGLI’s Optional insurance. However, securing individual term insurance often requires a medical exam, which can be a drawback for retirees with health conditions.

2. Permanent Life Insurance

Some retirees may prefer the stability and cash value accumulation of permanent life insurance, such as whole or universal life insurance. These policies tend to have higher premiums than term life insurance but provide lifelong coverage and the opportunity to build cash value. This can be an appealing option for retirees looking for more long-term stability or who want to use the cash value component to supplement retirement income.

3. Life Insurance Needs vs. Self-Insurance

Another option retirees are considering is self-insuring, which means forgoing life insurance altogether and relying on accumulated savings and investments to cover final expenses and provide for their heirs. This approach can make sense for retirees who have substantial savings, no significant debts, and no dependents relying on their income. However, it requires careful financial planning to ensure that there will be enough money to cover expenses without the safety net of life insurance.

Is FEGLI Still a Good Deal for You?

Deciding whether to keep, modify, or drop FEGLI coverage in retirement is a personal decision that depends on a variety of factors. Here are a few questions retirees can ask themselves to help make an informed choice:

1. Do You Still Need Life Insurance?

The first and most important question is whether you still need life insurance at all. If your dependents are grown, your mortgage is paid off, and you have sufficient savings, you may not need as much coverage as you once did. In this case, it may make sense to reduce or eliminate your FEGLI coverage. On the other hand, if you still have significant financial obligations or want to leave money behind for your loved ones, maintaining coverage might be a good idea.

2. Are FEGLI Premiums Becoming Unaffordable?

If the rising cost of FEGLI premiums is putting a strain on your budget, it’s worth comparing the cost of keeping FEGLI against other options. You might find that a private life insurance policy offers better value for money, particularly if you’re in good health and can qualify for favorable rates.

3. Have Your Beneficiaries or Financial Goals Changed?

It’s essential to review your life insurance policy regularly to ensure it still aligns with your financial goals. If your beneficiaries have changed or if your financial priorities have shifted (for example, if you’re more concerned with estate planning or leaving a charitable legacy), you may need to adjust your coverage.

Reassessing Your Coverage for Peace of Mind

In 2024, many federal retirees are realizing that the life insurance coverage they’ve held for decades may no longer be the best fit for their current needs. With rising premiums, longer life expectancies, and changing financial goals, it’s more important than ever to reassess your FEGLI coverage. By evaluating your life insurance needs, exploring alternative options, and making informed decisions, you can ensure that you have the right coverage to protect your loved ones and achieve financial peace of mind in retirement.