How to maximize your FEGLI benefits

How do you know which type of Federal Employee Group Life Insurance you need?

March 13, 2025 1:47 pm

6 min read

Federal employee benefits are one of the top incentives that keeps people in government jobs throughout their careers. Managing those benefits, however, can be a time-consuming and difficult task without the help of professional assistance. One of the most confusing of those benefits is the Federal Employee Group Life Insurance (FEGLI). That’s because most federal employees don’t know which type they have, or how much they’re paying.

There are four FEGLI options: Basic, Option A, Option B and Option C. The cost of each of these options is withheld from a federal employee’s pay each pay period. The Office of Personnel Management provides a calculator to help federal employees understand the cost of each of these types of coverage, or any combinations thereof.

Basic

Eligible employees are automatically enrolled in Basic. Most federal employees, including part time employees, are eligible. Participation is voluntary, but federal employees have to waive their coverage if they do not wish to participate.

Basic insurance covers a specific amount tied to the pay of the employee. That amount is the adjusted base annual pay, rounded up to the nearest $1,000, plus an additional $2,000. So if a federal employee makes $50,500 per year, their basic insurance amount (BIA) would be $53,000. This changes automatically with increases or decreases in pay that would place the employee in a new $1,000 bracket.

The minimum BIA is $10,000 per year. There is no maximum BIA, but federal employees subject to pay caps will also see their BIA cease to increase once they’ve reached that cap.

That said, federal employees under 45 automatically have more coverage based on their age. Federal employees who pass away at age 35 or younger receive two times their BIA. Federal employees 45 and older receive exactly their BIA. Everyone in between receives a multiplier to their BIA based on their age.

Source: Federal Employee Group Life Insurance handbook, Office of Personnel Management, p26.

Basic FEGLI insurance costs between $10-$30 per pay period. It’s very inexpensive while employed, but the price increases dramatically in retirement.

This is a great policy for federal employees while they work. When they retire, there are 4 options on what to do with it: no reduction, 50% reduction, 75% reduction or cancellation. Only one of these options is worth considering. No reduction will cost about seven times more for the same coverage. A reduction of 50% will cost about three times more for half the coverage. Cancellation forfeits all the years of premiums you paid into the policy. A reduction of 75% maximizes Basic FEGLI in retirement. It will become free (when 65 or older and retired) and slowly reduces to one-quarter of feds’ final years’ salary, never going lower. It is basically a free final expense policy.

Optional coverage

The Standard Form (SF) 2817 (Life Insurance Election) is usually required — some agencies do allow electronic election as well — to enroll in optional coverage. Optional insurance can change the cost, the payout and who is covered by the policy, to help federal employees tailor their coverage to their unique situation.

Option A

Option A is the cheapest plan, at $2 per pay period — until the federal employee turns 60, at which point the cost rises to $6 per pay period. It pays $10,000, plus an additional $10,000 for accidental death and dismemberment for federal employees under the age of 45.

This policy is great to keep up until retirement. Feds will have 2 options at retirement: Keep it or cancel it. Federal employees should to keep this, because they get to keep one-quarter of it for free when 65 or older and retired.

Option B

Option B provides federal employees the opportunity to receive much more than their BIA. Feds electing Option B can choose to receive between one and five times their annual pay, rounded up to the nearest $1,000. Option B does not include the additional $2,000 that basic coverage does. It also does not include the additional coverage for federal employees under age 45.

There is no minimum coverage for Option B. Likewise, there is no maximum coverage for Option B, though like the Basic coverage, if a federal employee’s salary is capped, that will affect how much coverage they can have under Option B.

Option B sets what experts call a “life insurance trap.” Because most people who select this forget that they have it until they hit their late 50s and early 60s, when the cost starts to double, triple and quadruple. It’s not easy or cheap to get individual life insurance for someone in their 60s, since the cost depends on their age and health at the time of issuance. Feds either need to grow out of needing Option B before 55 by saving enough assets to self-insure, or replace it with private sector life insurance as early as possible. There are different types of insurance for different types of goals and objectives. It is important to talk to a federal retirement consultant that specializes in life insurance to learn the options and what might be best for your situation.

If feds find themselves near retirement and are just learning this, a good strategy to use if they cannot qualify for private sector life insurance is the “full reduction multiples.” It is a way to carry some of this coverage for free in retirement for a period of time if they cannot replace it and can’t afford to keep it.

Option C

Option C covers spouses and all eligible dependent children. All eligible family members are automatically covered upon election of Option C. Spouses are covered for a base amount of $5,000, while eligible dependent children are covered for a base amount of $2,500. Federal employees can choose to multiply those base amounts by one to five times when they elect this coverage. The cost of Option C is based on the age of the federal employee, not the age of the spouse or dependent.

Feds should replace Option C with private sector life insurance for their spouse and children as early as possible so it will be more affordable. Then it’s not tied to their employment. This allows them to select the proper amount of coverage for each person and can choose from multiple types of coverage depending on their goals and objectives. If feds find themselves in a situation where they no longer have anyone that qualifies to be covered — i.e. no longer have a spouse, and kids are all 22 or older now — federal retirement consultants can teach them how to get a refund for the premiums they paid when no one qualified for the coverage. Also, if feds are close to retirement and just learning this, then keeping option C for their spouse may be comparable in price to getting a new final expense policy if their spouse is also around retirement age.