For most of your federal career, FEGLI is an easy decision. Premiums come out of every paycheck, they’re modest, and you rarely think about them.
Retirement changes that. The decisions you make about FEGLI when you retire, and again at 65, determine whether your coverage becomes free, shrinks, or turns into one of the larger bills in your budget. Option B is where most of the surprises are. Here’s how each piece of FEGLI works once you leave federal service, and what to weigh before you decide.
First: can you keep it at all?
You can carry FEGLI into retirement only if you meet OPM’s five-year rule. You must retire on an immediate annuity, and you must have been covered for the 5 years of service right before your annuity starts, or for every period the coverage was available to you if that’s less than 5 years.
The rule applies separately to Basic and to each option. If you added Option B multiples within the last 5 years, those extra multiples generally can’t come with you. Once you’re retired, you can reduce or cancel coverage at any time, but you can never increase it. Anything you drop is gone for good.
Basic coverage: three choices at retirement
When you retire, you choose how your Basic coverage will shrink after 65, and that choice sets your premium for life. Here’s what each election costs per OPM’s current annuitant rates, using $100,000 of Basic coverage as an example:
| Election | Coverage after 65 | Monthly cost before 65 | Monthly cost after 65 |
|---|---|---|---|
| 75% Reduction | Shrinks to $25,000 | $34.67 | Free |
| 50% Reduction | Shrinks to $50,000 | $109.67 | $75.00 |
| No Reduction | Stays at $100,000 | $259.67 | $225.00 |
Most retirees choose the 75% Reduction, which becomes free at 65. The other two keep a larger death benefit, but you pay premiums for life unless you later cancel or switch to the 75% Reduction.
Hypothetical example for illustration only. Your Basic coverage amount is based on your salary; OPM’s rates may change.
Option B: where the real costs are
Option B is additional coverage in multiples of 1 to 5 times your salary. When you retire, you choose for each multiple between two paths:
- Full Reduction. You keep paying premiums until 65, then coverage is free but shrinks by 2% a month until it reaches zero, about four years later.
- No Reduction. You keep the full death benefit for life, and you keep paying premiums for life at rates that rise with each age band.
Take a retiree with $300,000 of Option B, five multiples of a $60,000 salary:
Source: OPM annuitant Option B rates, effective Oct. 1, 2021. Hypothetical $300,000 of coverage.
The premium rises about 80% from the late 60s to the early 70s, roughly doubles in the late 70s, and climbs another 60% at 80. Coverage that seemed affordable at 66 can become one of the largest line items in a retirement budget, which is why Option B with No Reduction is the FEGLI choice most worth revisiting every few years.
Hypothetical example for illustration only. OPM’s rates may change.
Options A and C in brief
Option A is a flat $10,000 of coverage. It becomes free at 65 (or at retirement, if later) and then reduces by 2% a month until it reaches $2,500. You don’t get a reduction choice. Before 65 it costs $13 a month from ages 60 to 64, so a few years of premiums buy a small permanent benefit.
Option C covers your spouse and eligible children, in multiples of $5,000 for a spouse and $2,500 for each child. Like Option B, you choose Full Reduction or No Reduction for each multiple. With No Reduction, five multiples run about $31 a month at 65 to 69 and about $85 a month at 80 and over. Coverage for children ends once they no longer qualify, which for most retirees has already happened.
Questions to answer before you decide
- What is the coverage actually for? Replacing income for a spouse, paying off a mortgage, covering final expenses, and leaving an inheritance each call for different amounts and lengths of coverage.
- Will your spouse already be protected? A survivor annuity, Social Security survivor benefits, and your savings may cover much of what life insurance once did.
- How long would you keep it? The cost of Option B with No Reduction climbs steeply in your late 70s and 80s. Coverage that’s affordable at 66 may not be at 81.
- What would the alternatives cost? Depending on your health, a private policy may cost more or less than FEGLI for the same coverage. Compare before you drop anything, since FEGLI can’t be added back.
- Have you reviewed your beneficiary designations? FEGLI pays according to your designation on file with OPM, or under the order of precedence if you haven’t filed one.
The bottom line
FEGLI decisions in retirement are one-way doors. You can always reduce or cancel later, but you can never get coverage back. That makes it worth deciding deliberately, ideally a year or two before you retire, while you can still compare options.
As a CERTIFIED FINANCIAL PLANNER™ professional who works with federal employees, I help clients decide how much life insurance they still need in retirement and how to keep it affordable, alongside their survivor benefit, FEHB, and TSP decisions. Schedule a complimentary consultation to review yours.
Jeffrey Settle, CFP®, District Financial Planning
Sources
- U.S. Office of Personnel Management, FEGLI Premiums for Annuitants (rates effective October 1, 2021, current as of this writing)
- U.S. Office of Personnel Management, FEGLI Premium Rates, Benefits Administration Letter 21-204, Attachment 1
- U.S. Office of Personnel Management, What is the five-year/all opportunity rule for continuing life insurance into retirement?
- U.S. Office of Personnel Management, Benefits Administration Letter 15-306
- FedSmith, OPM Announces New FEGLI Premiums
This material is for informational purposes only and is not intended as tax, legal, or individualized financial advice. FEGLI premiums and rules can change; confirm your own coverage and costs with your agency’s HR office and OPM before you retire.