As FEGLI premiums rise, especially approaching retirement, many federal employees begin to explore alternatives. Whether it’s a private policy or a strategy to reduce coverage, that shift can be a smart financial move. But it’s also where some of the most overlooked and costly life insurance mistakes tend to happen.
One of the most common missteps is naming your estate as the beneficiary. It may seem like a simple default, but it can create unnecessary delays and expenses for your family. When life insurance proceeds are paid to an estate, they typically go through probate, which can slow access to funds and reduce the total payout due to legal and administrative costs. Naming individuals directly helps ensure those funds are delivered quickly and as intended.
Another issue that often surfaces during coverage changes is failing to name a contingent beneficiary. If your primary beneficiary passes away before you and no backup is listed, the policy can revert to your estate, bringing probate back into the picture. This is an easy fix, but one that’s frequently overlooked, especially when replacing or updating policies.
Federal employees should also think carefully before naming minor children directly as beneficiaries. While the intention is clear, the execution can be problematic. In many cases, a court-appointed guardian will be required to manage the funds until the child reaches adulthood, which can limit flexibility and create delays. Using a trust or another structured approach can provide far more control over how those funds are handled.
Another key consideration for federal employees moving away from FEGLI is understanding how your coverage changes in retirement. Many employees don’t realize that certain FEGLI options reduce significantly over time or become far more expensive to maintain. If you’re evaluating alternatives, it’s critical to compare not just today’s cost, but how both options behave long term.
Finally, one of the biggest mistakes is canceling FEGLI before a replacement plan is fully in place. While switching coverage can make financial sense, it should never leave you exposed. Health changes or underwriting issues can make new coverage more difficult or more expensive than expected. Any transition should be handled carefully to ensure there’s no gap in protection.
Exploring alternatives to FEGLI can be a smart move, but only if it’s done strategically. The details matter, and getting them right can make a meaningful difference for both your finances and your family’s future. Reach out to a Federal Retirement Consultant (FRC®) who can help you make a choice that best fits your needs.
