Intro
The Federal Employees’ Group Life Insurance program — FEGLI — is one of those benefits federal employees enroll in on day one, mostly ignore for 30 years, and then face a confusing set of decisions about right before retirement. The forms are dense, the reduction elections are counterintuitive, and the trade-offs between paying more in retirement or letting coverage drop can mean tens of thousands of dollars in life insurance payout that either does or doesn’t reach your family when you die.
Most federal employees choose the FEGLI defaults at retirement — and most of the time, that’s the wrong choice. This guide walks through what FEGLI actually is, what changes at retirement, and how to think about the reduction elections.
What FEGLI is (a quick refresher)
FEGLI has four components. You can enroll in one, two, three, or all four:
Basic Life. Coverage equal to your salary rounded up to the next $1,000, plus $2,000. So a $95,400 salary gets $98,000 of Basic coverage. Includes an “extra benefit” that doubles the coverage until age 45, gradually decreasing back to face value by age 65.
Option A — Standard. A flat $10,000 of additional coverage. Cheap. Almost every federal employee has it. Effectively pocket change compared to the other options.
Option B — Additional. One, two, three, four, or five times your salary in extra coverage. This is where most of the meaningful coverage sits — a $100,000-salary employee with Option B at 5x has an extra $500,000 of insurance.
Option C — Family. Coverage for your spouse and dependent children. One “multiple” is $5,000 for spouse and $2,500 per child. You can elect up to 5 multiples.
Premiums for Options B and C rise sharply with age. In your 20s and 30s, they’re inexpensive. By your 50s and 60s, they’ve become substantial. By 70+, they’re often unaffordable.
What changes at retirement
To keep FEGLI in retirement, you must meet two requirements: you must be enrolled in FEGLI Basic Life for the five years immediately before retirement (or since your first opportunity to enroll), AND you must retire under an immediate annuity (not a deferred retirement).
If you meet both, FEGLI carries into retirement — but with a critical decision on each component. You elect a reduction schedule that determines how the coverage evolves after age 65 (or the day you retire, whichever is later). Once made, the reduction elections are permanent.
The Basic Life reduction options
For Basic Life coverage, you choose one of three reduction schedules:
75% Reduction. Your Basic Life coverage drops by 2% per month starting the month after you turn 65 or retire (whichever is later), until it reaches 25% of the original amount. This is the “default” and the cheapest option in retirement — after you turn 65, you pay nothing for the remaining 25% coverage. Downside: a $98,000 Basic policy shrinks to $24,500 over 37 months.
50% Reduction. Your Basic Life coverage drops by 1% per month, ending at 50% of the original amount. Premiums continue at a moderate rate throughout retirement.
No Reduction. Your Basic Life stays at 100% of the original amount for life. Premiums are the highest of the three options — often several hundred dollars per month by your 70s.
For someone whose family will need meaningful life insurance protection after retirement, No Reduction can be the right choice. For someone whose retirement income leaves the surviving spouse comfortable without it, 75% Reduction is fine.
The Option B decision
Option B is where the biggest retirement mistakes happen. Federal employees often carry three, four, or five multiples of salary in Option B during their working years — appropriate when they had a mortgage, kids in college, and their spouse depended on their income.
At retirement, you elect a reduction schedule for Option B:
Full Reduction. Coverage decreases by 2% per month starting the later of your 65th birthday or retirement, dropping to zero over 50 months. You pay no premiums for Option B after that point. But the coverage disappears — permanently.
No Reduction. Option B coverage stays at 100% of face value for life. Premiums continue to rise with age and become substantial in your 70s and 80s.
Here’s the math most federal employees don’t do. A 62-year-old retiree with $500,000 of Option B coverage electing No Reduction is looking at Option B premiums that will grow to $2,500-$3,500 per month by age 75, and $5,000+ per month by 85. Across 20 years of retirement, that’s often $500,000 to $700,000 in premiums for a $500,000 death benefit that only pays if you die during that period.
Compare to a private term life or permanent life policy. For a healthy 60-year-old, a $500,000 20-year term policy costs $2,500 to $5,000 per year — $50,000 to $100,000 total across 20 years. Same coverage, roughly 1/10th the cost.
For federal retirees in reasonable health, replacing Option B with a private policy before retiring almost always saves money. But the private policy has to be underwritten while you’re still healthy. Waiting until 70 to price it out means paying much more or being uninsurable.
The Option C question
Option C — family coverage — is cheap when your kids are young and much less useful once they’re independent adults. At retirement, most federal employees elect Full Reduction on Option C for the same reason as Option B: the premiums accelerate, and the coverage becomes less relevant.
The one exception: if your spouse is not insurable through private insurance (due to health), Option C on No Reduction can be a lifeline. It’s federally underwritten with guaranteed acceptance during your active employment, so it may be the only life insurance available for a spouse with pre-existing conditions.
What most federal retirees should actually do
Ranges vary by financial situation, but a common decision pattern looks like this:
- Basic Life: 75% Reduction. Keep some coverage for burial/final expenses at zero cost after 65.
- Option A: Keep, since it’s cheap. Small windfall for the family.
- Option B: Full Reduction — and replace the coverage with a private term or permanent policy underwritten before retiring, if you still need life insurance.
- Option C: Full Reduction unless spouse is uninsurable privately.
For high-income retirees or those with significant remaining life-insurance needs (business owners, farmers, adults with special-needs children), the calculation may push toward No Reduction on Basic and Option B. This is worth walking through carefully with an advisor rather than defaulting.
The private-insurance timing trap
Federal employees who plan to replace their Option B coverage with a private policy often wait too long. The right time to apply for the replacement policy is BEFORE you retire — while you’re still working, likely still on employer health insurance, and haven’t hit an age where premiums become punitive.
The order of operations:
1. Two to three years before retirement, get quotes on private term or permanent policies to cover the gap you’d have if you dropped Option B. 2. Apply for the replacement policy and go through underwriting. Get the policy issued. 3. At retirement, elect Full Reduction on FEGLI Option B (and Option C, if replacing). 4. Continue paying the private policy premiums, which are typically 1/10th what FEGLI Option B would cost in your 70s.
The trap is retiring first, discovering that Option B premiums are unaffordable in your 70s, and then trying to get private coverage — but now you’re 72 with a heart condition and the private market won’t cover you.
What we tell federal retirees at Stonebridge
The FEGLI decision is one we walk through in the Federal Retirement Report because the numbers are always specific. How much life insurance do you actually need in retirement? What’s your spouse’s projected income if you die? What’s Social Security’s survivor benefit? What’s the survivor annuity option on your FERS pension worth? Once those numbers are on paper, the FEGLI reduction elections become obvious.
If you’d like a walkthrough of your specific FEGLI decision — including whether replacing Option B with a private policy makes sense for your family — you can request a free Federal Retirement Report. There’s no charge and no obligation.
FEGLI is a mostly-good benefit that gets more expensive and less useful in retirement. Understanding the reduction elections before you sign the retirement paperwork is worth an hour.