Reassessing the Importance of Life Insurance During Retirement
Contemplating the Elimination of FEGLI Coverage Upon Retirement?
For many federal employees, the decision to drop their Federal Employees’ Group Life Insurance (FEGLI) coverage upon retirement is a weighty one, particularly due to concerns regarding age-based premiums impacting their Federal Employees Retirement System (FERS) annuity. Before reaching a conclusion, it’s essential to consider the following points:
Understanding FEGLI in Retirement
Some argue that the reduced coverage provided by FEGLI Options A, B, and C may not justify the associated premiums. However, there may still be value in FEGLI Basic, as its premiums are comparable to those of permanent, non-cash value insurance offered by private insurers.
FEGLI Basic offers flexibility, allowing policyholders to opt for a 75% reduction upon reaching age 65 or their retirement date (whichever is later). Subsequently, coverage gradually decreases by 2% each month until it reaches 25% of the original amount, remaining premium-free for life thereafter.
Exploring Reasons to Maintain Life Insurance in Retirement
If you decide to forego FEGLI, there are compelling reasons to consider private life insurance. It can act as a financial safety net, covering expenses such as funeral costs, estate taxes, or medical bills not covered by healthcare insurance. Additionally, it can help settle outstanding debts like car loans or credit card balances, ensuring financial stability for your surviving loved ones.
Moreover, life insurance proceeds can serve as a lasting legacy for your beneficiaries, providing ongoing financial support beyond your lifetime.
Assessing Coverage Requirements
Determining the necessary life insurance coverage depends on your financial situation and your spouse’s income after retirement. Under FERS, you can choose for your surviving spouse to receive either 50% or 25% of your base annuity, with corresponding reductions of 10% and 5% in your annuity.
However, these benefits may not be adequate if your spouse lacks other sources of retirement income. Furthermore, considering the potential loss of Social Security payments upon the death of a spouse emphasizes the importance of additional life insurance coverage.
Seeking guidance from a Federal Retirement Consultant (FRC®) trained advisor allows for a thorough examination of private life insurance options tailored to retirees. By evaluating your unique financial circumstances, you can determine whether life insurance is a prudent addition to your retirement plan.
