The Rising Costs of FEGLI: Is It Worth the Premiums?

Established in 1954, the Federal Employees’ Group Life Insurance (FEGLI) program is the largest group life insurance plan in the world, covering over 4 million federal employees, retirees, and their families. However, many federal workers don’t fully understand how FEGLI operates. The key point to remember is that FEGLI is term life insurance, not permanent life insurance. Essentially, you’re renting coverage rather than owning it.

The FEGLI Basic Program

FEGLI’s Basic plan provides term life insurance at group rates, with the federal government covering one-third of the premium cost and employees paying the remaining two-thirds. Your Basic Insurance Amount (BIA) is calculated as your annual basic salary rounded up to the next even $1,000, plus an additional $2,000.

It’s important to note that FEGLI’s term life insurance does not accumulate any cash or paid-up value. Additionally, if you leave federal service or are terminated before retirement, you lose your FEGLI coverage altogether.

What Happens to FEGLI Basic at Retirement or Age 65?

When you retire or turn 65 (whichever occurs later), you’ll need to decide how your FEGLI Basic coverage will proceed:

• 75% Reduction: Your Basic coverage decreases by 2% monthly until it reaches 25% of the original amount. Once reductions begin, your coverage is free and remains free for life.
• 50% Reduction: Your Basic coverage reduces by 1% monthly until it reaches 50% of the original amount. You’ll pay an additional premium for this option until death or until you switch to the 75% Reduction or cancel your coverage.
• No Reduction: Your Basic coverage remains unchanged from when you retired. However, this option comes with significantly higher premiums, which you must pay until you either switch to the 75% Reduction or cancel your policy.

Why Permanent Life Insurance Might Be a Better Choice

Private-sector permanent life insurance policies often provide more value and flexibility compared to FEGLI. Permanent policies ensure your coverage does not decrease when you retire—precisely when you and your family may need it most. Additionally:

• You can keep a permanent policy if you leave federal service for a private-sector job.
• Permanent policies often provide better benefits for surviving spouses.
• They can accumulate cash value, which may be accessed for emergencies or other financial needs.

Make an Informed Decision

FEGLI’s limitations and rising costs can make permanent life insurance a more attractive option for many federal employees and retirees. Consult with an FRC® certified advisor to evaluate your needs and compare private-sector policies that may offer superior coverage and long-term value.