As FEGLI premiums increase, particularly as retirement approaches, many federal employees start looking at alternatives. Whether that means transitioning to a private policy or simply reducing coverage, the move can make financial sense. But it’s also a point where some of the most common and costly life insurance mistakes tend to occur.
One of the biggest missteps is naming your estate as the beneficiary. While it may seem like an easy default, it can create unnecessary complications for your family. Life insurance proceeds paid to an estate typically go through probate, which can delay access to funds and reduce the overall benefit due to legal and administrative costs. Naming individual beneficiaries directly is usually a more efficient way to ensure the money reaches them quickly.
Another issue that often comes up during coverage changes is failing to name a contingent beneficiary. If your primary beneficiary passes away before you and no backup is listed, the policy can default to your estate—bringing probate back into the equation. It’s a simple step to address, but one that’s frequently overlooked when policies are updated or replaced.
It’s also important to think carefully before naming minor children as beneficiaries. While the intent is understandable, the logistics can be complicated. In most cases, a court-appointed guardian will need to manage the funds until the child reaches adulthood, which can limit flexibility and delay access. Setting up a trust or another structured solution can offer greater control over how and when the money is used.
If you’re considering moving away from FEGLI, understanding how your coverage changes in retirement is critical. Many employees aren’t fully aware that certain FEGLI options decrease over time or become significantly more expensive to maintain. Comparing alternatives isn’t just about today’s premium—it’s about how those costs and benefits evolve over the long term.
Finally, one of the most important mistakes to avoid is canceling FEGLI before securing replacement coverage. Even if switching policies seems like the right move, it should never leave you without protection. Changes in health or underwriting outcomes can make new coverage more expensive—or even unavailable. Any transition should be handled carefully to avoid gaps.
Exploring private life insurance options can be a smart decision, but only if it’s approached thoughtfully. The details matter, and getting them right can have a lasting impact on both your financial picture and your family’s future. Reach out to a Federal Retirement Consultant (FRC®) who can help you find the solution that best fits your needs.
