The Federal Employees’ Group Life Insurance (FEGLI) offers a Basic plan that’s a great deal. It provides term life insurance at group rates and Uncle Sam pays one-third of your Basic premiums. Even better — the premium rate does not change as you age. However, you may want to think twice about continuing FEGLI Options A, B and C in retirement.
How FEGLI Basic Works In Retirement
To continue FEGLI Basic in retirement, you have to make a decision on how much coverage you want to keep. One option is the 75% Reduction: on your 65th birthday, or on your retirement date (whichever is later), your coverage begins to decrease by 2% each month until it reaches 25% of the original amount. The remaining coverage will continue premium free for the rest of your life. Your other options are the 50% Reduction Option or No Reduction. But you’ll have to pay an extra premium for each unless you change to the 75% reduction or cancel your FEGLI coverage entirely.
How FEGLI Options A, B & C Work In Retirement
If you carry Option A into retirement, it automatically decreases by 2% per month until it reaches a 75% reduction at the age of 65 or at retirement (whichever is later) and you’ll no longer have to pay premiums. With Options B and C, you’ll have to decide how many multiples of each you’d like to keep and choose either the 75% reduction or No Reduction.
“Then again, if you’re poised to enter retirement relatively debt free and your funeral expenses have been prepaid, you may not need much life insurance at all in your 60s.”
You May Want To Drop FEGLI Option B Entirely
Starting around age 35, Option B premiums begin increasing every 5 years. By age 50, premiums essentially double at each five-year age band. With each pay increase, your Option B premiums also increase. In fact, Option B premiums become so cost prohibitive as you age, at some point the death benefit is less than all of the total premiums you’ve paid.
FEGLI Is Term Life Insurance & Doesn’t Build Any Cash Value
Since FEGLI is a term life insurance product, it doesn’t build up any cash value you can access. Permanent life insurance offered by private insurers builds cash value that earns interest on a tax-deferred basis.
Then again, if you’re poised to enter retirement relatively debt free and your funeral expenses have been prepaid, you may not need much life insurance at all in your 60s. Other insurance products like a fixed or indexed annuity can offer you guaranteed income for life plus a death benefit for your beneficiary. Touch base with an FRC® trained advisor to learn more about annuities.
