- Retirees choose from three basic FEGLI reduction options at retirement: 75%, 50%, or no reduction, each with different premium costs and coverage levels after age 65
- Under the 75% reduction option, premiums stop at age 65 and coverage reduces to 25% of the amount in force at retirement over approximately three and a half years
- Keeping beneficiary forms current is critical, as FEGLI payments follow a strict order of precedence that defaults to surviving family members if no beneficiary is designated
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When federal employees retire, one of the key decisions they face is how to handle their Federal Employees Group Life Insurance (FEGLI) coverage going forward. The election made at the time of retirement determines how the basic life insurance coverage will continue and at what cost. Depending on the option selected, coverage begins to reduce at age 65 or at retirement, whichever comes later. Understanding the differences between these options can help retirees make an informed choice that aligns with their financial needs and family obligations.
The 75% Reduction Option
Under the 75% reduction option, basic life insurance coverage remains in full force from the date of retirement until the retiree reaches age 65. After age 65, the coverage reduces by 2% per month until it reaches 25% of the amount that was in force at the time of retirement. This reduction period takes approximately three and a half years to complete. Premiums are deducted from the monthly annuity until age 65, after which no further premiums are required. If the retiree passes away during the reduction period, the beneficiary receives whatever amount the coverage has been reduced to at that point.
The 50% Reduction Option
The 50% reduction option works similarly but retains more coverage over the long term. Basic coverage stays in full force until age 65, then reduces by 1% per month until it reaches 50% of the retirement amount. The reduction period is also approximately three and a half years. Premiums before age 65 are approximately $1.10 per $1,000 of coverage, and after age 65, they drop to about $0.75 per $1,000 of coverage. As with the 75% option, if the retiree dies during the reduction period, the payment to the beneficiary reflects whatever amount the coverage has been reduced to.
The No Reduction Option
The no reduction option keeps basic life insurance at its full amount with no decrease at any point. This is the most expensive option, as premiums are deducted from the annuity to cover the full cost of maintaining coverage. Before age 65, premiums run approximately $2.60 per $1,000 of coverage. After age 65, they decrease slightly to about $2.25 per $1,000 of coverage. For retirees who want to maintain the maximum death benefit for their beneficiaries, this option provides that security at a higher monthly cost.
A Practical Example
Consider an employee who retires at age 55 with a base pay of $68,000. Under the 75% reduction option, they would pay $23.57 per month from age 55 to 65, after which premiums stop and the coverage reduces to $17,500. Under the 50% reduction option, the monthly cost is $74.57 from age 55 to 65 and $51 per month after age 65, with coverage reducing to $35,000. Under the no reduction option, the cost is $176.57 per month before age 65 and $153 per month afterward, with the full $68,000 coverage remaining in place.
Optional Insurance: Options A, B, and C
In addition to basic coverage, retirees may also carry optional insurance. Option A costs increase every five years before age 65 and have no cost after that age. However, the coverage reduces by 2% per month after age 65 until it reaches a balance of $2,500. For Options B and C, retirees can elect to continue coverage on an unreduced basis by paying premiums after age 65, or they can elect a full reduction. Under the full reduction path, coverage decreases by 2% per month for 50 months beginning at age 65 until the balance reaches zero, at which point premiums stop and the policy becomes free.
Order of Precedence for FEGLI Benefits
FEGLI benefits are paid according to a strict order of precedence. If you have a designated beneficiary or assignee listed on your SF-2823, payments go to that person. If no beneficiary is designated, the payment goes first to the surviving spouse, then to children (divided equally among them), then to parents (split between both if living, or to a single surviving parent), then to the executor or administrator of the estate. If none of these can be located, the payment goes to the next of kin.
Keeping your beneficiary forms current is one of the simplest and most important things you can do. The most recently filed form always takes precedence. If your form is outdated and the payment must go through estate administration, the process can become lengthy and complicated for your family. Filing a new SF-2823 whenever your circumstances change helps avoid that situation entirely.
Method of Payment
Beneficiaries receiving less than $5,000 will receive a single lump-sum payment. For larger amounts, beneficiaries have the option of receiving the full payment at once or setting up a Total Control Account through MetLife, which allows them to receive payments on a scheduled basis.
