How FEGLI is Going to Eat Your Pension Check


Written By: Joseph Polakovic

Be Aware of What’s Happening
Many federal employees do not think much about their Federal Employee Group Life Insurance (FEGLI) plan until they reach retirement and start noticing that their pension is drastically decreasing. FEGLI works as a 5-year renewing Term Life Insurance policy. Most people don’t know that starting at age 50 the premiums for certain options roughly double every 5 years and will continue to do so until age 80. In retirement, this cost feels compounded, as a pension check is not as much as working wages. Unfortunately, this is something we see far too often.

Things to Consider
It is not widely known that most benefits for federal employees are provided by private companies, not the government. In this case, FEGLI is sponsored by MetLife, and MetLife has a business to run. The name of the game is to attract employees into this plan at the beginning of their careers. With super-low premiums, it’s a no brainer for most people to enroll, especially those who are young and have growing families. Then, as they age, the cost will rise significantly until the premiums become prohibitively expensive and the federal employee has no choice but to cancel, throwing away all those years of premiums without ever receiving any benefit. Even worse, some people will pay hundreds of thousands of dollars over their career hoping to keep these options, only to be forced to drop it when the premiums wipe out their entire pension payment.

Who is it Right for?
While we have shown the effects of what can happen when you hold on to certain options too long, it can also be a good value while you are young. So, if your intent is to knowingly drop out of this at some point, then it can be a low-cost way of having life insurance during the times when it is most necessary. Additionally, it is a group plan, so there is no medical exam required to enroll which is beneficial for smokers or those with pre-existing conditions.

Do Alternative Strategies Exist?
Once federal employees see that their FEGLI premiums can increase by over 2,000% throughout their career (that’s 20x initial cost) they begin to seek out alternatives. In conducting this search, some questions to ask would be: Does this plan accumulate cash-value that I would have access to? Does this plan have living benefits? Is this plan term or permanent insurance?

There is no one size fits all strategy that works best for everyone, but life insurance can be a very important part of any financial plan. Additionally, as we discussed in our Survivor Benefit Article (Why Most Feds Are Overpaying For The Survivor Benefit), properly planning ahead can save you from needing to buy another expensive life insurance policy later!

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