What Is FEGLI?
Federal Employees' Group Life Insurance (FEGLI) is one of the largest group life insurance programs in the world, covering millions of federal employees and retirees. It is administered by the Office of Personnel Management (OPM) and underwritten by MetLife. As a federal employee, you are automatically enrolled in Basic FEGLI coverage unless you specifically waive it, and you have the option to elect additional coverage through Options A, B, and C.
FEGLI serves an important role in providing financial protection for your family. But like any insurance product, it has both strengths and limitations. Understanding the details of each coverage level — especially how costs change over time — is essential for making informed decisions about your life insurance needs.
Basic Insurance Coverage
Basic FEGLI coverage is the foundation of the program. The coverage amount equals your annual basic pay rounded up to the nearest $1,000, plus an additional $2,000. For example, if your basic pay is $95,400, your Basic coverage would be $97,000 (rounded up to $96,000, plus $2,000).
Cost during employment: The premium for Basic coverage is shared between you and the government. You pay approximately $0.15 per $1,000 of Basic Insurance Amount (BIA) per biweekly pay period. The government pays one-third of the total cost. For most employees, this amounts to a modest paycheck deduction — typically between $10 and $25 per pay period depending on salary.
Extra Benefit for younger employees: If you are under age 45 and die while covered, your beneficiaries receive an additional amount equal to your BIA. This extra benefit decreases by 10% per year after age 36, reaching zero at age 45. So a 30-year-old employee with $97,000 in Basic coverage would actually provide $194,000 in death benefits.
Post-retirement options: When you retire, you can choose how Basic coverage is handled:
- 75% Reduction: Coverage gradually reduces by 2% per month starting at age 65, eventually settling at 25% of your pre-retirement BIA. This option is free — no premiums after age 65.
- 50% Reduction: Coverage reduces to 50% of your pre-retirement BIA at age 65. You pay a small additional premium until age 65, then no further premiums.
- No Reduction: Coverage remains at the full pre-retirement BIA for life. You continue paying the additional premium indefinitely. This is the most expensive option and the one that surprises many retirees with its ongoing cost.
Option A: Standard Insurance
Option A provides a flat $10,000 in additional life insurance coverage. The cost depends on your age:
- Under age 35: $0.43 per month
- Age 35-39: $0.65 per month
- Age 40-44: $0.87 per month
- Age 45-49: $1.30 per month
- Age 50-54: $2.17 per month
- Age 55-59: $4.33 per month
- Age 60+: $6.50 per month (until retirement)
After retirement, Option A reduces to $2,500 at age 65 and becomes free. While the coverage amount is relatively small, Option A is inexpensive during your working years and provides a small additional benefit at no cost in retirement.
Option B: Additional Insurance
Option B is where FEGLI coverage gets substantial — and where the cost issues become most significant. Option B allows you to elect one to five multiples of your annual basic pay in additional coverage. This means a GS-14 employee earning $120,000 could carry up to $600,000 in Option B coverage.
Cost during employment: Option B premiums are based entirely on your age. They are reasonable during your 30s and 40s but escalate rapidly after age 50:
- Age 35-39: $0.87 per month per $1,000 of coverage
- Age 40-44: $1.30 per month per $1,000
- Age 45-49: $2.17 per month per $1,000
- Age 50-54: $4.33 per month per $1,000
- Age 55-59: $6.50 per month per $1,000
- Age 60+: increasingly expensive
For a 55-year-old with $120,000 in salary carrying 5x Option B coverage ($600,000), the monthly premium would be approximately $3,900 per month — an enormous expense that most employees cannot sustain.
Post-retirement behavior: This is the critical issue with Option B. After retirement, you have two choices:
- Full Living Benefit: You continue paying the full age-based premiums, which continue to increase. Coverage does not reduce but costs can become prohibitive.
- No Living Benefit (reduction): Coverage reduces by 2% per month starting at age 65, reaching zero after approximately four years. This is free, but you lose all Option B coverage.
There is no middle ground. You either pay escalating premiums to keep the coverage or watch it disappear entirely by your late 60s. This binary choice catches many retirees off guard.
Option C: Family Insurance
Option C provides coverage for your spouse and eligible dependent children. You can elect one to five multiples:
- Each multiple provides $5,000 in coverage for your spouse and $2,500 for each eligible dependent child
- At 5 multiples, your spouse would be covered for $25,000 and each child for $12,500
- Premiums are based on your age, not your family members' ages
Like Option B, Option C costs increase with age. After retirement, Option C follows the same reduction/full-cost pattern as Option B.
The Cost Problem: Why FEGLI Becomes Unsustainable
FEGLI's fundamental challenge is that it is group insurance with age-based pricing but without the underwriting that individual policies use to lock in rates. When you are young and healthy, FEGLI is an excellent deal — the group rates are competitive, enrollment requires no medical exam, and the government subsidizes Basic coverage.
But as you age, several problems emerge:
- Option B premiums skyrocket: The cost per $1,000 of coverage roughly doubles every five years after age 45. By your late 50s and into your 60s, the premiums can easily exceed $1,000 to $5,000 per month depending on your salary and coverage level.
- No rate lock: Unlike a private term life insurance policy that guarantees your premium for 10, 20, or 30 years, FEGLI rates increase at every age bracket. You cannot lock in today's rate.
- Opportunity cost: The money spent on expensive FEGLI premiums in your 50s and 60s could be invested or used to fund other retirement goals.
When to Consider Alternatives
The optimal strategy for many federal employees is to supplement or replace FEGLI with private life insurance while they are still healthy enough to qualify at favorable rates. Here is a general framework:
In your 30s and 40s: FEGLI is typically cost-effective. Consider carrying Basic plus Option B at two or three multiples. Also consider purchasing a private 20- or 30-year level-term life insurance policy. Private term rates for healthy individuals in their 30s are remarkably low — often $30 to $50 per month for $500,000 to $1,000,000 in coverage with a guaranteed level premium for the full term.
In your 50s: Compare your FEGLI Option B premiums with private term insurance rates. If you are in good health, a private 10- or 15-year term policy may provide equivalent coverage at a fraction of the FEGLI cost. Gradually reduce Option B multiples as your private coverage takes over.
Approaching retirement: Evaluate whether you still need life insurance at all. If your children are independent, your mortgage is paid, and your surviving spouse would have adequate income from the FERS survivor benefit, Social Security, and TSP/IRA assets, you may be able to reduce coverage significantly or eliminate it.
In retirement: Consider keeping only the free portions of FEGLI — Basic at 75% reduction and Option A at $2,500 — and canceling any Option B and C coverage to avoid the punishing post-retirement premiums.
How Much Life Insurance Do You Actually Need?
Before deciding on FEGLI coverage levels, determine how much life insurance you truly need. A common approach is to consider:
- Income replacement: How many years of your income would your family need to maintain their standard of living? A common rule of thumb is 10 to 12 times your annual income, but this varies based on your family's expenses, debts, and other income sources.
- Debt payoff: Include your mortgage, car loans, student loans, and any other debts you would want eliminated.
- Education funding: If you have children approaching college age, factor in education costs.
- Survivor income sources: Subtract the value of the FERS survivor benefit, Social Security survivor benefits, existing savings, and your spouse's earning capacity.
The gap between your family's needs and their available resources is the amount of life insurance you should carry. As that gap narrows over time — debts are paid, children become independent, savings grow — your insurance need decreases, and you can reduce coverage accordingly.
The Bottom Line
FEGLI is a valuable benefit, especially during your working years when the government subsidizes Basic coverage and group rates are competitive. But it is not designed to be a cost-effective solution for large coverage amounts in your 50s, 60s, and beyond. The most effective approach is to use FEGLI as a foundation, supplement it with private term insurance when you are young and healthy, and systematically reduce your total coverage as your financial obligations decrease. By planning ahead, you can maintain adequate protection for your family without paying the steep premiums that FEGLI demands in later years.