FEGLI life insurance: the retirement efficiency audit most federal employees never run

Federal Employee Group Life Insurance offers four coverage types with dramatically different cost structures in retirement. The coverage that felt like a bargain during your working years can become one of your largest recurring expenses after you retire, which is why a periodic FEGLI review is one of the highest-value moves a federal employee can make.

The numbers that matter

• Basic FEGLI in retirement: 75% reduction, no premium.
• Option A coverage: a fixed $10,000.
• Option B premium at age 70: roughly $500 to $800 per month for high coverage.
• Average annual savings: about $3,200 for those who switch expensive coverage to a private policy.
• Private insurance: medical underwriting required.

FEGLI coverage options

Understanding each of the four coverage types is essential before deciding what to keep, what to reduce, and what to replace.

• Basic Life Insurance: Automatic coverage equal to your annual salary plus $2,000. It reduces by 75% in retirement but becomes premium-free. Generally worth keeping since it costs nothing after retirement.
• Option A (Standard): Additional $10,000 of coverage. Premiums increase with age but the coverage amount stays fixed. Relatively modest cost increases make this option often worth keeping.
• Option B (Additional): 1 to 5 times your annual salary. It maintains full value in retirement but premiums become extremely expensive with age. This is where most savings opportunities exist.
• Option C (Family): Coverage for spouse and children. Spouse coverage continues in retirement with age-based premium increases. Often replaceable with lower-cost private coverage.

The FEGLI cost explosion

The retirement premium shock is most severe with Option B, where premiums increase every 5 years and can become unaffordable just when you may want insurance most. The figures below are based on 3 times salary Option B coverage ($150,000):

• Age 55: about $89 per month.
• Age 65: about $284 per month.
• Age 70: about $629 per month.

Meanwhile, life insurance needs typically decline in retirement as financial obligations decrease and assets accumulate. Most retirees are paying for protection they no longer need. Common reasons coverage needs fall include:

• Mortgage typically paid off.
• Children financially independent.
• Retirement assets accumulated.
• Spouse may have their own benefits.
• Estate planning strategies mature.
• Income replacement becomes less critical.
• Tax situation often improved.
• Health care costs more predictable.

Beyond premium comparison

FEGLI analysis requires more than comparing premiums. A sound review evaluates your complete financial picture, family situation, health status, and estate planning goals to determine the optimal coverage strategy. Two pieces of the analysis matter most:

• Coverage need assessment: Analyze your actual insurance needs based on current financial obligations, your spouse's situation, dependent status, and retirement income adequacy.
• Private market comparison: If you qualify medically, private term life insurance often provides better value than expensive FEGLI Option B coverage, especially for non-smokers in good health.

FEGLI planning FAQ

How much does FEGLI cost in retirement?

Basic FEGLI reduces by 75% in retirement but remains complimentary (no premium). Optional coverages are where costs can become problematic. Option A continues at $10,000 of coverage, and premiums increase with age. Option B (1 to 5 times salary) continues at full value, but premiums increase dramatically, often several hundred dollars per month for older retirees. Option C (family coverage) also continues with age-based premium increases. The key issue is that while coverage continues, you are paying much higher rates in retirement when you may no longer need the same coverage level you had during your working years.

Should I keep FEGLI or get private insurance?

It depends on your health, age, and coverage needs. FEGLI's advantages are no medical underwriting, guaranteed issue, and convenience. Private insurance advantages include often lower premiums (especially for healthy individuals), fixed-term coverage that ends when you no longer need it, and potentially larger death benefits. Many federal employees benefit from keeping Basic FEGLI (it is complimentary in retirement anyway) while replacing expensive Option B coverage with a lower-cost private term policy. We recommend getting a private insurance quote to compare. If you are healthy, you may be paying far more than necessary.

What is Option B and why is it expensive?

Option B is additional life insurance coverage equal to 1, 2, 3, 4, or 5 times your annual salary. During your working years, it is relatively affordable. The problem arises in retirement. Option B continues at full value (based on your salary at retirement), but premiums are based on your age and increase every 5 years. For a 70-year-old retiree with high Option B coverage, premiums can exceed $500 to $800 per month. By that age, many retirees no longer have the same coverage needs (mortgage paid off, kids financially independent), making these premiums difficult to justify.

Can I get private life insurance instead of FEGLI?

Yes. You are not required to keep FEGLI, and you can cancel optional coverages at any time (though you may not be able to re-enroll later without a life event). Many federal employees choose to keep Basic FEGLI since it is complimentary in retirement, but replace costly Option B with a private term life insurance policy that ends when coverage is no longer needed. Private insurance requires medical underwriting, so your health, age, and lifestyle affect eligibility and pricing. We can help you compare options and determine if private coverage makes sense for your situation.

When should I review my FEGLI coverage?

You should review FEGLI at major life events: marriage, divorce, birth of children, home purchase, mortgage payoff, and as you approach retirement (ideally 5 to 10 years before). Many federal employees elect Option B early in their career when they have young children and a mortgage, then never revisit the decision. By retirement, circumstances have changed dramatically. Kids are grown, the house is paid off, and the need for large life insurance coverage has diminished. Reviewing coverage every few years ensures you are not over-insured and overpaying for protection you no longer need.