FEGLI Life Insurance: The Federal Employee's Retirement Decision Guide

Every federal employee has FEGLI. Few understand what actually happens to it at retirement. Here's the honest breakdown — premiums, reductions, traps, and when it makes sense to replace it with a private policy.

Part 1: The four FEGLI coverage types

FEGLI is administered by OPM through MetLife. It's group life insurance — meaning you get coverage without a medical exam, which is particularly valuable for employees with health conditions who would face underwriting hurdles in the private market. The tradeoff: cost and flexibility are limited compared to individual policies.

Basic

Coverage equals your annual basic pay rounded up to the next $1,000, plus $2,000. If your salary is $118,500, your Basic coverage is $119,000 + $2,000 = $121,000.

You're automatically enrolled in Basic when you enter federal service unless you waive it. Cost: $0.15 biweekly per $1,000 of coverage — the government pays two-thirds, you pay one-third. At $121,000 of coverage, that's about $18.15 biweekly out of your paycheck.

Additional Basic benefit under age 45: If you're under 35, the death benefit is actually double your Basic coverage (2×). It steps down by 10% per year from 35 to 45, at which point the multiplier is 1× and stays there. This extra coverage costs nothing. A 32-year-old GS-12 at $90,000 has $184,000 in effective Basic coverage ($92,000 × 2), not $92,000.

Option A — Standard

An additional flat $10,000 of coverage. Employee pays the full premium — about $0.16 biweekly when young, rising to about $2.17 biweekly at 60–64.

Option B — Additional

Coverage in multiples of your annual pay: 1×, 2×, 3×, 4×, or 5×. On a $118,500 salary, 5× Option B = $592,500 of additional coverage. Employee pays the full premium, and the rate is age-based — it steps up every five years, dramatically at 65. This is where most of the retirement planning complexity lives. See Part 3.

Option C — Family

Coverage on your spouse and eligible dependent children, in multiples from 1–5:

• Each multiple = $5,000 on your spouse + $2,500 on each eligible child
• At 5 multiples: $25,000 spouse coverage, $12,500 per child

This is term life on your family, not you. It pays if your spouse or child dies, not if you do. Many federal employees are over-insured here if their spouse has substantial income or their children are nearly adults.

Part 2: The 5-year rule — can you keep FEGLI in retirement?

To carry FEGLI into retirement, OPM requires that you were enrolled in Basic — and in each optional type you want to keep — for at least the five years immediately before your retirement date (or since your first opportunity to enroll, if shorter).³

This rule applies separately to Basic, Option A, Option B, and Option C. If you dropped Option B coverage ten years ago and re-enrolled two years before retirement, you cannot continue Option B into retirement. If you've been continuously enrolled since you were hired and you've been employed under five years, the "since first opportunity" provision covers you.

Part 3: The retirement decision — what happens at 65

The retirement decision isn't really about what FEGLI costs while you're working. It's about what happens to that coverage once you're collecting an annuity and approach age 65. This is where the complexity — and the traps — live.

Basic insurance: three options at retirement

When you retire, you elect one of three options for your Basic coverage. This election is locked in — you cannot change it after it takes effect.⁴

Source: OPM FEGLI handbook and federal retirement planning guides.⁴

The 75% Reduction is the default and most common choice. You pay roughly the same premium in retirement as you did while employed, until 65 — then coverage winds down for free. The 25% residual is effectively burial insurance: enough to cover final expenses, not meaningful income replacement.

No Reduction is expensive but provides permanent life insurance — which matters if you have lifelong dependents (a disabled adult child, for example), estate-planning goals, or you're uninsurable in the private market. At $2.25/mo per $1K after 65, a $121,000 Basic policy costs $272/month. That's not cheap.

Option A: reduces automatically at 65

At age 65 (or retirement, if later), Option A reduces by 2% per month until coverage reaches $2,500. No premium during the reduction and at $2,500 coverage. Like the Basic 75% Reduction, it ends as nominal burial coverage. Most people simply let it happen — it's free, and the $2,500 is better than nothing. The $10,000 face value while working is modest, so few people pay extra to keep it at $10,000 in retirement.

Option B: full reduction vs. no reduction

Option B has two retirement choices: Full Reduction or No Reduction.

Full Reduction: Starting the month after the later of your 65th birthday or your retirement date, Option B reduces by 2% of the pre-retirement face value per month for 50 months, reaching zero. Coverage is free during the reduction period and beyond.⁵

No Reduction: Your Option B coverage remains at 100%, but you continue paying age-based premiums — which are significantly higher in retirement than during your working years. See the rate table below.

Part 4: The Option B cost trap — why this matters near retirement

Option B looks inexpensive when you're young. It becomes extremely expensive in retirement if you choose No Reduction. The premiums are set on 5-year age bands and jump sharply at 65.²

Premiums per OPM rate schedule (last updated Oct 2021; no increases announced through 2026). Annual cost column assumes 5× Option B on a $120,000 salary = $600,000 coverage. 26 biweekly periods used for annual calculation.²

The jump from the 60–64 band ($0.40) to the 65–69 band ($1.04) is 160%. If you elect No Reduction and continue 5× Option B coverage into your late 60s and 70s, you can easily spend $15,000–$20,000 per year on life insurance premiums — which may or may not make sense depending on your estate situation and whether you're insurable privately.

Part 5: FEGLI vs. private life insurance — when to switch

FEGLI Option B's main advantages are group underwriting (no medical exam) and automatic enrollment. Its disadvantages in retirement are rising costs and the all-or-nothing reduction choice. Private term or permanent life insurance may beat FEGLI if:

When private insurance likely wins

• You're in good health at 50–60: A healthy 55-year-old can often get a 15- or 20-year level term policy for less than the escalating FEGLI Option B premium — and know exactly when coverage expires. Level premiums give planning certainty that FEGLI's band structure doesn't.
• You need coverage past 65: A whole life or guaranteed universal life policy purchased in your 50s locks in permanent death benefit at a fixed premium. FEGLI's No Reduction path is ongoing and expensive; a properly-designed permanent policy can be paid-up or have predictable premiums.
• You want more than income replacement: FEGLI is blunt. A private policy can be structured for estate liquidity, business buyout, or irrevocable life insurance trust (ILIT) ownership — none of which FEGLI accommodates.

When FEGLI wins

• You're uninsurable or high-risk: FEGLI's no-medical-exam guarantee is its most valuable feature for employees with health conditions. If private underwriting would exclude or surcharge you significantly, FEGLI Option B at its group rate may be the better deal even at higher ages.
• You only need coverage through retirement: If your spouse is independent, your mortgage will be paid off at retirement, and your children are launched, you may not need life insurance past 60. The Basic 75% Reduction handles final expenses for free after 65 — no private policy needed.
• You need coverage now but can't qualify medically: FEGLI's guaranteed issue at open seasons and qualifying life events gives access without underwriting. Use it until you can qualify for private coverage, or keep it permanently if underwriting is a barrier.

Part 6: How FEGLI intersects with the survivor annuity election

This is the question federal benefits specialists encounter constantly: should a retiree elect the 50% survivor annuity, or take the full annuity and use private life insurance (or FEGLI) to provide survivor income?

The survivor annuity costs a 10% reduction on your FERS basic annuity — permanent, for life. On a $60,000 annuity, that's $6,000/year you give up to give your spouse a $30,000/year survivor benefit (50% of your full pre-reduction annuity).

The life insurance alternative: take the full $60,000 annuity. Buy enough term or permanent life insurance to generate $30,000/year in income for your spouse at a 4% withdrawal rate (roughly $750,000 of coverage). If the life insurance premium is less than $6,000/year, you come out ahead — assuming you don't die early in retirement when the insurance vs. annuity break-even hasn't been reached.

FEGLI Option B can theoretically serve this function — carry 5× Option B with No Reduction to provide survivor income if you die early in retirement. But the cost trajectory (see Part 4 above) makes this increasingly expensive past 65. A private permanent policy purchased before retirement is often a better fit for the "life insurance as survivor annuity substitute" strategy, because the premium is locked in and the death benefit is predictable.

Part 7: A concrete example — GS-14 at retirement

Consider a GS-14 step 8, salary $148,000, retiring at 60 after 30 years with a spouse age 57 and no dependents. Current FEGLI coverage: Basic ($150,000) + 3× Option B ($444,000).

FEGLI Option B cost today (age 60, band 60–64): 3× = $444,000 = 444 units × $0.40 biweekly = $177.60 biweekly = ~$4,613/year.

FEGLI Option B cost at 65 (No Reduction): 444 units × $1.04 biweekly = $461.76 biweekly = ~$12,006/year. A 160% premium jump.

Alternative: At 60, this employee is still insurable. A 20-year $400,000 level term policy (enough to cover the retirement years until his spouse is 77) might cost $2,000–$3,500/year depending on health — substantially less than FEGLI Option B at 65+, with a guaranteed fixed premium.

Basic in retirement: The employee elects 75% Reduction. The $150,000 Basic coverage slowly reduces to $37,500 after age 65 — effectively handling final expenses at no ongoing cost. The separate term policy handles income replacement if he dies before 80.

Survivor annuity decision: Given the private term policy, the couple might elect the 25% survivor annuity (5% annuity reduction) rather than the full 50%, reducing the annuity cost from $14,800 to $7,400/year — while the $400,000 term policy backstops the survivor's income if he dies early.

Every case is different. These numbers are directional — the right answer depends on health status, estate goals, state taxes, and whether the spouse has independent retirement income.

Sources

1. OPM — How much do I pay for my FEGLI coverage? Employee pays $0.15 biweekly per $1,000 of Basic coverage (⅓ of total premium); government pays ⅔. Basic coverage = annual salary rounded to next $1,000 + $2,000.
2. OPM — FEGLI Premium Overview: Option B rates by age band, Option C family coverage rates. Rates last updated Oct 2021.
3. OPM — The 5-year/all-opportunity rule for continuing FEGLI into retirement: must be enrolled in each type of coverage for 5 years immediately before retirement.
4. OPM — Basic Insurance in Retirement: 75% Reduction ($0.3467/mo per $1K until 65, free thereafter; reduces 2%/month to 25%), 50% Reduction ($1.0967/mo until 65, $0.75/mo after; reduces to 50%), No Reduction ($2.5967/mo until 65, $2.25/mo after; stays at 100%).
5. OPM — Option B Additional Insurance in Retirement: Full Reduction reduces 2% per month for 50 months beginning the month after age 65 or retirement (whichever is later); coverage reaches zero and is free. No Reduction maintains full coverage at age-based premiums.

FEGLI premium rates verified against OPM program information (last updated Oct 2021; no increases announced through April 2026). Retirement reduction schedules and 5-year rule verified against OPM FAQs and FEGLI Calculator documentation.