Should I Keep FEGLI Option B in Retirement?

The Question Every Federal Retiree Asks Too Late

Option B premiums feel manageable during your career. At ages 50–54, you're paying $0.217 per $1,000 of coverage per month — roughly $65/month on $300,000 of coverage. Then you cross into the 55–59 band and it jumps to $117. By 60–64, it's $260. At 70–74, it hits $559. At 80+, it's $1,872/month on that same $300,000.

Most federal employees first confront these numbers when their HR office hands them SF 2818 a few weeks before retirement. The form requires a binding election — Full Reduction (coverage drops to zero over 50 months after 65, then premiums stop) or No Reduction (full coverage for life at escalating age-band premiums). That election is essentially permanent. You can move from No Reduction to Full Reduction later, but never the reverse.

So the question isn't just "should I keep it?" It's "for how long, and at what cost?"

When Keeping Option B Makes Sense

You have significant health conditions. FEGLI requires no medical underwriting. If you've been diagnosed with cancer, heart disease, diabetes, or any condition that would make private life insurance unaffordable or unavailable, FEGLI Option B may be your only source of substantial life insurance coverage. Cancelling it means you can never get it back.

Your spouse depends on your income for an extended period. If your spouse is significantly younger, doesn't have their own retirement income, or relies on your pension survivor benefit plus life insurance to maintain their standard of living, keeping Option B through your 70s may be worth the premium cost — especially if you can't qualify for private coverage.

You've elected a partial FERS survivor annuity (or none). Some retirees choose a reduced survivor annuity to maximize their own monthly pension. In that case, life insurance becomes the backup — it provides a lump sum that replaces the survivor income stream you chose not to fund through the pension system.

When Dropping or Reducing Option B Makes Sense

The premium drag exceeds your benefit. Calculate how much of your monthly annuity Option B consumes at each age band. If keeping three multiples on No Reduction would eat 15–20% of your gross annuity by age 75, the premium is competing with your ability to pay for healthcare, housing, and basic expenses. That's not sustainable.

Your coverage need has shrunk. The reason you bought five multiples at age 30 — young children, a mortgage, a stay-at-home spouse — may no longer exist at 62. If your mortgage is paid off, your children are financially independent, and your spouse will receive their own Social Security plus your FERS survivor annuity, you may not need $500,000 of life insurance anymore. A smaller coverage amount through Basic plus Option A (which becomes free after 65) may be sufficient.

You can qualify for private coverage. A healthy 55-year-old non-smoker can often lock in a 20-year level-term policy at a fraction of what FEGLI Option B costs at the same age bands. The key difference: the private premium stays flat for 20 years while FEGLI jumps every five. If you're healthy enough to pass underwriting, replacing Option B with private term coverage can save tens of thousands over the retirement horizon.

The Split-Multiple Strategy

You don't have to make an all-or-nothing decision. SF 2818 allows you to assign different elections to different multiples. If you carry five multiples, you could:

• Keep one or two multiples on No Reduction as a permanent safety net
• Let the remaining three or four multiples follow Full Reduction (free coverage until the reductions begin, then a gradual phase-out to zero)

This caps your long-term premium exposure while maintaining some permanent coverage. The key is running the numbers on what even one or two multiples cost at the 75–79 and 80+ bands. One multiple on $100,000 of rounded annual basic pay at ages 75–79 costs $390/month. Two multiples: $780/month. Make sure that fits your projected income.

The Cancellation Trap

If you cancel Option B at retirement (or at any point after), the cancellation is permanent. You cannot re-enroll. If your health changes after cancellation — a new diagnosis, a condition that makes private coverage unaffordable — you have no fallback.

This asymmetry is the reason many retirees keep at least one multiple on Full Reduction even when they're unsure they need the coverage. The Full Reduction election costs money until the reductions begin but nothing after, and it preserves the option value of having coverage in force during the critical 55–65 window.

Running the Decision

Sit down with the OPM rate table, your projected FERS annuity (or CSRS annuity), and your expected Social Security benefit. Calculate the total monthly premium at each five-year age band through age 80. Then calculate that premium as a percentage of your total retirement income. The ratio tells you whether Option B is a manageable expense or a drain that undermines your financial stability.

The FEGLI Decision Guide provides the premium projection framework and decision matrix to model this choice with your actual numbers, covering every Option B scenario from full cancellation to partial No Reduction.

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