Key Takeaways:

• Many federal retirees are reconsidering their FEGLI coverage due to evolving financial needs and new retirement priorities in 2024.
• Understanding the pros and cons of keeping or dropping FEGLI can help federal retirees make informed decisions about their post-retirement life.

Thinking About Dropping Your FEGLI? Here’s What Federal Retirees Are Deciding

As federal retirees enter 2024, more of them are reconsidering their Federal Employees’ Group Life Insurance (FEGLI) policies. Deciding whether to drop or keep FEGLI in retirement has become a key question for many. While FEGLI offers valuable life insurance, the ongoing cost in retirement and evolving personal circumstances are driving many retirees to reassess its value. In this article, we’ll explore what’s motivating federal retirees to drop their FEGLI coverage and what factors should be considered before making any decisions.

Why Some Retirees Are Dropping FEGLI

One of the primary reasons federal retirees are dropping their FEGLI coverage in 2024 is due to the rising costs of maintaining the policy. FEGLI premiums can increase substantially as policyholders age, particularly after the age of 65. For retirees living on a fixed income, these increasing costs can become a burden. Many retirees are finding that their financial priorities have shifted, especially when weighed against other expenses like healthcare or travel.

Another factor is that some retirees find they no longer need as much life insurance as they did while employed. In retirement, without dependents to support or significant debts to pay off, the necessity of large life insurance policies may diminish. For others, accumulated savings or other investments may provide sufficient financial security, rendering life insurance less essential.

Shifting Financial Priorities

As retirement progresses, many retirees focus on maximizing their quality of life rather than maintaining large insurance premiums. The financial flexibility that comes with reducing or eliminating certain costs, such as FEGLI premiums, can be highly appealing. Some retirees are using the money saved from dropping FEGLI to fund hobbies, travel, or other lifestyle upgrades. The changing landscape of personal financial planning has made it more important than ever to reassess the necessity of FEGLI against other potential uses for retirement funds.

The Pros and Cons of Dropping FEGLI

When considering dropping FEGLI, federal retirees need to weigh both the advantages and disadvantages carefully.

Advantages of Dropping FEGLI

1. Reduced Monthly Costs: One of the most immediate benefits of dropping FEGLI is that it eliminates the monthly premium, potentially freeing up hundreds of dollars a year, depending on coverage levels.
2. Alternative Financial Strategies: Retirees may find that reallocating funds previously spent on FEGLI premiums could be better used elsewhere, whether it’s for travel, healthcare, or contributions to a grandchild’s college fund.
3. No Longer Necessary: As retirement progresses, many retirees find they no longer need a large life insurance policy. Children are often financially independent, mortgages paid off, and retirement savings can cover final expenses.

Disadvantages of Dropping FEGLI

1. Loss of Guaranteed Coverage: FEGLI provides guaranteed coverage, meaning you’re covered regardless of health status. Dropping it could make it difficult to get a similar policy if you later decide you need coverage again, especially if your health has deteriorated.
2. Estate Planning Impacts: If life insurance is part of your estate planning strategy, dropping coverage could affect the size of the inheritance you leave behind. This might be a concern for retirees who want to ensure a financial cushion for their heirs.
3. Unexpected Costs: Life’s uncertainties, such as unexpected healthcare costs or the financial needs of family members, could make having life insurance beneficial in the long run, even in retirement.

What Are Your Alternatives to FEGLI?

Before deciding to drop FEGLI, retirees should be aware of the alternatives available to them. There are a variety of other life insurance policies and financial tools that might better suit their changing needs.

Term Life Insurance

If you no longer need lifelong coverage, a term life insurance policy may be a good alternative. These policies tend to be more affordable than whole life or permanent insurance policies, and they cover a set period (such as 10, 20, or 30 years). For retirees who still want some life insurance coverage but don’t want to continue paying FEGLI’s rising costs, a term policy could be an option worth exploring.

Final Expense Insurance

For retirees looking to cover the cost of funeral and burial expenses, final expense insurance can be an alternative. These policies offer lower coverage amounts compared to traditional life insurance but are designed specifically to cover end-of-life expenses. This type of insurance could be a cost-effective alternative for those who want to ensure their loved ones are not burdened with these costs.

Self-Insurance Through Savings

Another option for retirees is self-insurance, which involves setting aside savings specifically for end-of-life expenses. If you’ve accumulated enough savings, you may not need a life insurance policy at all. Self-insurance can provide more control over your money, without the ongoing premiums required by life insurance policies.

What Should You Consider Before Dropping FEGLI?

Dropping FEGLI is not a decision to take lightly. There are several factors you should consider to ensure that this choice aligns with your financial goals and personal circumstances.

Health Status and Future Coverage Needs

Before dropping FEGLI, consider your health status and future insurance needs. If your health is declining or you anticipate future healthcare costs, maintaining your FEGLI coverage could be a smart move. The guaranteed nature of FEGLI, regardless of health changes, offers a level of security that can be hard to find in other policies, especially as you age.

Financial Dependents

If you still have financial dependents, such as a spouse or children who rely on your income or savings, keeping your FEGLI coverage might be wise. Life insurance can provide them with financial security in the event of your passing, covering any debts or ongoing expenses that might arise.

Other Insurance Options

Retirees should research other available insurance policies and compare the costs and benefits to FEGLI. There are many life insurance products that could potentially offer better value or be more tailored to your current financial situation. Consulting with a licensed insurance agent could help clarify your options and guide you through the decision-making process.

How Federal Retirees Are Making the Decision

Every federal retiree’s situation is unique, and the decision to drop FEGLI ultimately depends on individual circumstances. In 2024, more retirees are relying on a blend of financial strategies, such as downsizing their life insurance while bolstering their savings and investment portfolios. Others may opt to keep a smaller FEGLI plan that offers some level of coverage while reducing premium costs.

Talking to financial planners or licensed insurance agents can also help retirees make more informed decisions. These professionals can offer personalized advice based on retirement goals, health conditions, and family needs.

For many, the peace of mind that comes from knowing they are covered in some capacity—whether through a reduced FEGLI policy, an alternative insurance plan, or savings—is worth the effort of thoroughly evaluating all options.

Planning Your Financial Future Without FEGLI

If you decide that dropping FEGLI is the right move for you, it’s crucial to have a financial plan in place. Retirement is a time when financial stability is paramount, and every decision you make regarding insurance and savings will impact your long-term comfort. Making an informed choice about FEGLI is just one aspect of that broader financial picture. With the right planning, federal retirees can transition away from FEGLI while maintaining the financial security they’ve worked so hard to achieve.