For most of your federal career, FEGLI works quietly in the background. Premiums come out of your paycheck, coverage stays in place, and you do not think much about it. Retirement changes that. The decisions you make about your FEGLI coverage when you leave federal service are permanent in ways that catch a lot of retirees off guard.
The Five-Year Rule
Before anything else, you need to meet the eligibility requirement to carry FEGLI into retirement. You must have been enrolled in FEGLI for the five years immediately preceding your retirement, or for the full period of federal service during which coverage was available if that period was less than five years. If you do not meet that threshold, you cannot continue coverage into retirement. Your only option at that point is to convert to an individual policy, which must be done within 31 days of retirement.
What Happens to Basic Coverage
If you are eligible to continue Basic life insurance into retirement, you must choose from three reduction options: 75% Reduction, 50% Reduction, or No Reduction. Accidental Death and Dismemberment coverage stops at retirement regardless of which option you choose.
With the 75% Reduction, the default if you make no election, your Basic coverage begins reducing by 2% per month starting at age 65 or retirement, whichever is later, until it reaches 25% of its pre-retirement value. Once the reductions begin, the coverage is free.
With the 50% Reduction, your coverage reduces by 1% per month beginning at age 65, settling at 50% of the original amount. You pay an additional premium for this option that continues for life unless you switch to the 75% reduction or cancel coverage.
With No Reduction, your Basic coverage stays at its full pre-retirement amount for the rest of your life. This carries the highest ongoing premium, which continues until you die, switch to 75% reduction, or cancel coverage.
One critical point: any reduction or cancellation of coverage after you retire is permanent. If you reduce your coverage, you cannot increase it again later.
What Happens to Optional Coverage
Option A, the standard $10,000 flat coverage, can be continued into retirement if you meet the five-year rule. It remains at $10,000 until age 65, then reduces by 2% per month until it reaches $2,500. No premiums are charged during the reduction phase or after; the coverage essentially becomes free as it shrinks.
Option B is where many federal retirees encounter an unpleasant surprise. Unlike Basic and Option A, Option B does not automatically reduce in retirement. You can choose a full reduction, where coverage levels reduce by 2% per month until coverage ends after 50 months. Or, you can keep it at the full multiple of your pre-retirement salary, but premiums increase significantly with age and continue rising. Rates for Option B can increase nearly 400% between age 55 and age 70. Many retirees find that private life insurance becomes a more cost-effective alternative to the coverage Option B provides.
Option C covers your spouse and eligible dependent children. It can be continued into retirement, but premiums are age-based and increase over time, similar to Option B.
The Decision You Cannot Undo
Your FEGLI elections at retirement are made on Standard Form 2818, which you submit to your HR office as part of your retirement application package. If you make no election for Basic, OPM defaults to the 75% reduction option.
These decisions deserve careful thought before you retire, not after. The right answer depends on your health, your dependents, your other assets, and whether private coverage might serve you better, particularly for Option B, where the cost trajectory over a long retirement can be significant.
A Federal Retirement Consultant (FRC®) can help you evaluate your FEGLI elections as part of your overall retirement planning picture. Schedule your complimentary benefits review today.
