FEGLI vs Private Life Insurance: The Complete 2026 Guide
Compare FEGLI Option B costs vs private term life insurance. See exactly when to keep FEGLI, when to switch, and how to avoid the costly FEGLI trap.
FEGLI vs Private Life Insurance: The Complete 2026 Guide
Last Updated: January 17, 2026 Reading Time: 10 min
Most federal employees enroll in FEGLI as new hires without much thought. Twenty years later, they notice their Option B premiums have skyrocketed. By then, private insurance is expensive too. This is the "FEGLI trap," and it catches thousands of federal employees every year.
This guide breaks down exactly when FEGLI makes sense, when private term life insurance wins, and the critical age window where you can save tens of thousands of dollars.
Key Takeaways
- FEGLI Basic is usually worth keeping, especially with the 75% reduction option that becomes free after age 65
- FEGLI Option B costs 20x more at age 60 than at age 35 for the same coverage
- Healthy employees should evaluate private term life insurance between ages 45-50
- Never drop FEGLI before your private policy is approved and first premium paid
- Employees with health conditions should keep FEGLI since it requires no medical exam
How FEGLI Works: The Four Coverage Types
FEGLI (Federal Employees Group Life Insurance) has four distinct components. Understanding each is essential before comparing to private options.
Basic Insurance
Your salary rounded up to the nearest $1,000, plus $2,000. The government pays one-third of the premium, making this the best value in FEGLI. Current cost: $0.16 biweekly per $1,000 of coverage.
Example: A $100,000 salary gets $102,000 in Basic coverage.
Option A (Standard)
A flat $10,000 of additional coverage. Costs range from $0.20 to $6.00 biweekly depending on age. Includes accidental death benefit for employees under 45.
Option B (Additional)
The coverage most people struggle with. You can elect 1x, 2x, 3x, 4x, or 5x your salary. Premiums reset every five years based on your age band, and this is where the "FEGLI trap" happens.
Option C (Family)
Coverage for your spouse ($5,000 per multiple) and children ($2,500 each per multiple). You can elect 1-5 multiples.
The FEGLI Trap: Why Option B Gets Expensive
FEGLI Option B uses age-banded premiums that reset every five years. The rate increases are dramatic.
Option B Cost per $1,000 of Coverage (Biweekly)
| Age Band | Biweekly Rate | Annual Cost for $500K | vs Age 35 |
|---|---|---|---|
| Under 35 | $0.02 | $260 | Baseline |
| 35-39 | $0.02 | $260 | Same |
| 40-44 | $0.03 | $390 | 1.5x |
| 45-49 | $0.06 | $780 | 3x |
| 50-54 | $0.10 | $1,300 | 5x |
| 55-59 | $0.18 | $2,340 | 9x |
| 60-64 | $0.40 | $5,200 | 20x |
| 65-69 | $0.48 | $6,240 | 24x |
| 70-74 | $0.86 | $11,180 | 43x |
| 80+ | $2.88 | $37,440 | 144x |
The math is brutal. A retiree at age 80 with $500,000 Option B coverage (no reduction) pays $37,440 per year in premiums alone.
How the Trap Works
- You enroll in FEGLI including Option B as a new hire
- Premiums are cheap, so you forget about it for decades
- At age 55-60, you notice Option B now costs $200-$400+ per month
- You discover private insurance is now expensive too, or you cannot qualify
- You feel stuck paying high premiums or dropping coverage you still need
Private Term Life Insurance: What You Could Get Instead
Private term life insurance locks in your rate for the full term, whether that is 10, 20, or 30 years. No age-based increases.
Average Rates for $500,000 Coverage (20-Year Term, Healthy Non-Smoker)
| Age | Monthly Premium | Annual Cost |
|---|---|---|
| 30 | $28-30 | $336-360 |
| 35 | $30-35 | $360-420 |
| 40 | $35-54 | $420-648 |
| 45 | $55-73 | $660-876 |
| 50 | $77-87 | $924-1,044 |
| 55 | $130-160 | $1,560-1,920 |
| 60 | $247-299 | $2,964-3,588 |
The key advantage: a 35-year-old who locks in a 20-year term pays the same $360/year at age 54 as they did at age 35. FEGLI would charge $1,300 by then.
Head-to-Head Comparison: $500,000 Coverage Over 20 Years
Let us compare total costs for a 35-year-old federal employee with a $100,000 salary.
FEGLI Option B (5x Salary)
| Age Period | Annual Premium | Subtotal |
|---|---|---|
| 35-39 | $260 | $1,300 |
| 40-44 | $390 | $1,950 |
| 45-49 | $780 | $3,900 |
| 50-54 | $1,300 | $6,500 |
| Total (20 years) | $13,650 |
Private 20-Year Term (Locked at Age 35)
| Age Period | Annual Premium | Subtotal |
|---|---|---|
| 35-54 | $390 | $7,800 |
| Total (20 years) | $7,800 |
Savings with private insurance: $5,850
And this assumes FEGLI rates do not increase, which they often do every 5-7 years. The real savings could be $10,000-$15,000 or more.
When FEGLI Wins
FEGLI is not always the wrong choice. Here is when keeping it makes sense.
Guaranteed Issue
FEGLI requires no medical exam if you enroll:
- Within 60 days of being hired
- During a FEGLI Open Season (rare, last one was 2016)
- After a qualifying life event like marriage or childbirth
If you have diabetes, heart disease, cancer history, or other conditions that would make private insurance expensive or unavailable, FEGLI may be your only affordable option.
Smokers
Private insurers charge smokers 200-300% higher premiums. FEGLI charges everyone the same rate regardless of tobacco use.
Portability Into Retirement
Unlike most employer life insurance, FEGLI can continue into retirement if:
- You retire on an immediate annuity
- You have been enrolled for at least 5 years
- You complete SF 2818 within 60 days of OPM notice
The 75% reduction Basic option is particularly valuable: free coverage for life at 25% of your original amount.
Older Employees with Health Issues
If you are over 55 with health problems, FEGLI may be your only option. Private rates for unhealthy 60-year-olds can exceed $500-$1,000 per month.
When Private Term Life Wins
Private insurance makes more financial sense in these situations.
Healthy Employees Under 50
The math clearly favors private term for employees who can qualify based on health. You lock in a level premium for 20-30 years instead of watching FEGLI premiums double every five years.
You Want Level Premiums
No surprise increases eating into your paycheck. Your premium stays the same from day one until the term ends.
Coverage That Does Not Reduce After 65
Private policies pay the full death benefit for the entire term. FEGLI Basic reduces to 25% with the standard reduction option.
The Optimal Strategy: What to Do at Each Age
New Hire (Any Age)
- Enroll in Basic during your 60-day window
- Consider Option A if you want an extra $10,000
- Think carefully about Option B, especially if under 35
- Get quotes from private insurers for comparison
Age 35-44
- Option B is still cheap, but this is a good time to get private quotes
- If healthy, consider locking in a 20 or 30-year term
- Keep Basic regardless
Age 45-50 (Critical Window)
This is the optimal time to act:
- Assess your needs. Do you still need $500,000 coverage? Are your kids grown? Is your mortgage paid off?
- Get private quotes. Lock in a 20-year term while rates are still reasonable
- Apply BEFORE dropping FEGLI. Never cancel until your private policy is approved and first premium paid
- Reduce or drop Option B once private policy is in force
- Keep Basic with the 75% reduction election for retirement
Age 50-60
Private rates get more expensive, but still likely cheaper than FEGLI Option B. Act quickly if you have been procrastinating.
At Retirement
- Elect 75% reduction on Basic (becomes free after 65)
- Consider Full Reduction on Option B (phases out, then free) unless you have specific reasons to keep it
- Drop Option C if your spouse has other coverage
FEGLI in Retirement: Understanding Reduction Options
Basic Insurance Reduction Elections
You must choose one of these options at retirement:
| Election | Post-65 Premium | Final Coverage |
|---|---|---|
| 75% Reduction | FREE | 25% of original |
| 50% Reduction | $0.31/month per $1,000 | 50% of original |
| No Reduction | $1.16/month per $1,000 | 100% of original |
Recommendation: Most retirees should choose 75% reduction. A $100,000 Basic policy becomes $25,000 of free coverage for life.
Option B and C Elections
| Election | What Happens |
|---|---|
| Full Reduction | Coverage phases out over 50 months, then becomes free at $0 |
| No Reduction | You keep paying age-based premiums to maintain full coverage |
Warning: If you elect "No Reduction" at retirement, you are locked in. You get one more chance to switch to Full Reduction shortly before age 65 when OPM sends a reminder letter.
Case Study: The Cost of Waiting
Employee A (Acts at Age 45):
- Buys private 20-year $500,000 policy at $65/month = $780/year
- Drops 5x Option B
- Total cost ages 45-65: $15,600
- Coverage: $500,000 level throughout
Employee B (Waits Until Age 55):
- FEGLI 5x Option B at 55-59: $2,340/year x 5 = $11,700
- FEGLI 5x Option B at 60-64: $5,200/year x 5 = $26,000
- Total cost ages 55-65: $37,700
- Coverage reduces or costs even more in retirement
Employee A saves $22,100 and has level coverage the entire time.
Calculate Your Retirement Picture
Life insurance is just one piece of your federal benefits. As you plan for retirement, use our free FERS Retirement Calculator to estimate your pension, FERS Supplement, and total retirement income.
Understanding your full financial picture helps you decide how much life insurance coverage you actually need.
Frequently Asked Questions
Is FEGLI Basic insurance worth keeping?
Yes, for most federal employees. The government pays 1/3 of the premium, making it a good value. At retirement, elect the 75% reduction option and your coverage becomes completely free after age 65. This provides a modest death benefit (often $20,000-$30,000) at zero cost.
When should I drop FEGLI Option B for private insurance?
The ideal window is ages 45-50. At this point, FEGLI Option B premiums start increasing significantly, while you are still young enough to qualify for competitive private rates. A healthy 45-year-old can lock in a 20-year term policy for 60-80% less than what FEGLI will cost over the same period.
What if I have health problems, should I keep FEGLI?
Yes. FEGLI is guaranteed issue during initial eligibility and qualifying life events, with no medical exam required. If you have pre-existing conditions that would make private insurance expensive or unavailable, FEGLI may be your best option. Never drop FEGLI before being approved for a private policy.
How much does FEGLI Option B cost at age 60 vs age 35?
FEGLI Option B at age 60 costs $0.40 per $1,000 biweekly versus $0.02 at age 35. That is 20 times more expensive. For $500,000 in coverage, a 35-year-old pays about $260/year while a 60-year-old pays $5,200/year.
What happens to FEGLI when I retire?
You can continue FEGLI into retirement if you have been enrolled for 5 years and retire on an immediate annuity. For Basic insurance, choose the 75% reduction option, which is free after 65 but coverage drops to 25%. Most retirees should take 75% reduction on Basic and drop or reduce Option B.
Can I convert FEGLI to a private policy when I leave government?
Yes, but it is usually not worth it. FEGLI can be converted to an individual policy without a medical exam within 31 days of losing coverage. However, converted policies are expensive whole life policies, not term. You are almost always better off applying for private term insurance while still employed.
Related Resources
- FERS Retirement Calculator: Estimate your pension and retirement income
- FERS Retirement Guide: Complete guide to federal retirement eligibility
- VERA/VSIP Guide 2026: Early retirement options for federal employees
Sources
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