Considering dropping your FEGLI coverage upon retirement? It’s a decision often pondered among federal employees due to concerns over age-based premiums impacting their FERS annuity. Before making a choice, weigh the following considerations:
Understanding FEGLI in Retirement
Critics argue that the reduced coverage of FEGLI Options A, B, and C might not justify the associated premiums. However, FEGLI Basic could hold some value, with its premiums comparable to permanent, non-cash value insurance available from private insurers.
FEGLI Basic offers flexibility, allowing you to opt for a 75% reduction on your 65th birthday or retirement date (whichever is later). Subsequently, coverage gradually diminishes by 2% monthly until it reaches 25% of the original amount, remaining premium-free for life thereafter.
Exploring Reasons for Retaining Life Insurance in Retirement
Should you opt to forgo FEGLI, there are compelling reasons to consider private life insurance. It serves as a financial cushion, covering funeral expenses, estate taxes, or medical bills not covered by healthcare insurance. Moreover, it can address outstanding debts like car loans or credit card balances, ensuring financial security for surviving loved ones.
Additionally, life insurance proceeds can serve as a legacy for your beneficiaries, offering financial support beyond your lifetime.
Assessing Coverage Needs
Determining the requisite life insurance coverage hinges on your financial circumstances and your spouse’s income post-retirement. Under FERS, you can elect for your surviving spouse to receive either 50% or 25% of your base annuity, with respective reductions of 10% and 5% in your annuity.
However, these benefits may not suffice if your spouse lacks alternative retirement income sources. Moreover, considering the potential loss of Social Security payments upon a spouse’s demise underscores the importance of supplemental life insurance coverage.
Consulting with an FRC® trained advisor enables a comprehensive exploration of private life insurance options tailored for retirees. By evaluating your unique financial landscape, you can determine whether life insurance constitutes a prudent addition to your retirement strategy.
