FEGLI, the Federal Employee Group Life Insurance program, is one of the largest term life insurance programs in the world. But it’s not always the best deal. Let’s look at what it offers.
Term life insurance is a good fit for those with dependents or significant financial obligations. The affordable, temporary coverage protects loved ones in case of death. However, if you don’t fit this profile, it might be an expense you don’t need to incur.
Pros and Cons
- No Initial Medical Exam: When you sign up, whether when you begin employment or after a qualifying life event, there’s no medical exam required. This differs from many products in the private marketplace that could be cost-prohibitive for those with existing health issues.
- Rising Costs: FEGLI is affordable when you’re young, but as your age increases, so does the price, especially with Option B. If you’re in good shape, you might find cheaper options.
- No Extras: FEGLI sticks to the basics. You won’t get payouts for serious illnesses or a cash value, which some private plans offer.
Coverage Options
- Basic: Rounds your salary up to the next $1,000 and adds $2,000. The government chips in, and the cost is stable.
- Option A: A flat $10,000.
- Option B: Multiplies your pay by 1 to 5, but the older you get, the more it costs.
- Option C: Covers your family in multiples of $5,000 for your spouse and $2,500 per child.
You can walk away from FEGLI anytime, but in order to increase your coverage, you’ll need a qualifying life event, an “open season” (which hasn’t happened since 2016), or medical underwriting.
After You Retire
You can continue FEGLI into retirement if you retire on an immediate annuity and meet the 5-year continuity requirement. What will happen to your Basic when you turn 65 or retire (whichever is later)? Your choices are:
- 75% Reduction: your Basic coverage reduces 2% each month until it reaches 25%. Your Basic is free (no premium) once the reductions begin and remains free until your death.
- 50% Reduction: your Basic coverage reduces 1% each month until it reaches 50%. There is an extra premium for this choice that you will continue to pay until you die, switch to 75% reduction, or cancel Basic.
- No Reduction: your Basic coverage does not reduce. There is a larger extra premium for this choice that you will continue to pay until you die, switch to 75% Reduction, or cancel Basic.
FEGLI is a convenient option, especially if you’re concerned about your health history, but as you age, you may consider transitioning to a private product. Reach out to a Federal Retirement Consultant® who can help you assess your coverage and costs.
