Federal Employees’ Group Life Insurance (FEGLI) vs. Term Life Insurance: What’s The Difference and Which One Should You Get?

FEGLI is an affordable — potentially free — group term life insurance exclusive to federal employees. Most people automatically sign up for a policy once they start working for the government without giving it much thought because of its low cost.

Alternatively, private term life insurance policies are available from insurance companies to anyone, whether a federal employee or not. They may cost more, but they also comprise more robust policies with extensive coverage. If you don’t have dependent beneficiaries, FEGLI may offer enough coverage. Otherwise, supplementing FEGLI with private term life insurance may best meet your household’s specific insurance needs.

FEGLI is exclusively available to federal employees, and the coverage amount is low. They can keep their policy for life unless they resign, in which case the coverage will only continue for 31 days, but they can convert it to an individual policy.

Meanwhile, term life insurance is widely available to everyone. But the monthly premium may be much higher than FEGLI. However, private policies provide higher coverage per dollar and more extensive benefits.

FEGLI is affordable, and eligible employees should take advantage of it — it’s a decent, cheap starter policy — but it rarely provides adequate coverage, especially for breadwinners. But FEGLI can supplement your private term life insurance coverage.

Whether you have FEGLI or not, we advise looking into term life insurance as your coverage needs grow. For instance, let’s say you get married. Instead of depending solely on FEGLI, a term life insurance policy can provide enough coverage to support your spouse or family should you pass away. These benefits can be used to pay off a mortgage and any outstanding debts.

Availability

Federal employees automatically qualify for FEGLI. Upon resignation, FEGLI must be converted to a regular policy, or else coverage stops.

Private term life insurance is available to all. Whether or not you can get a policy depends on your preferred insurer.

Cost

USPS workers get FEGLI for free, while other federal employees can sign up at a very low, affordable bi-weekly rate that their salary determines.

Private term life insurance may cost more than FEGLI, depending on age, but you can customize a policy to provide exponentially more coverage.

Death Benefit

FEGLI basic coverage has a death benefit equal to your annual salary (rounded up to the nearest thousand) plus $2,000 (an extra benefit that doubles the amount that applies to those 35 and under) or $10,000. You can also choose to pay for optional coverage, such as an additional $10,000, extra coverage of one to five times your salary or family coverage.

Private term life insurance provides more coverage per dollar. Most insurers would have no problem insuring you for hundreds of thousands or millions as long as you’re eligible for the policy and can afford the premium.

Length of Coverage

You can keep your FEGLI policy even after retirement and at potentially no cost to you at that time. Or you can convert your FEGLI policy into a whole life insurance product.

Term life insurance can vary on policy length. For example, you may choose a 10-year policy or a 30-year policy. You may be able to convert a term life policy into a whole life policy or extend its term — it’s best to discuss your options with an insurance agent.

Cash Value

FEGLI doesn’t accumulate cash value.

Private term life insurance policies have no accumulated cash value.

Rider Eligibility

FEGLI includes, at no additional cost, accidental death and dismemberment coverage. Consult your employer about whether other FEGLI riders are available, although it might make more sense to put your funds toward a more comprehensive private term life insurance policy.

The private term life insurance riders you can get will depend on your insurer. However, some common riders to expect are the waiver of premium, guaranteed insurability and accidental death and dismemberment.

Comparing the pros and cons of FEGLI and term life insurance can ensure that your life insurance choice aligns with your overall financial plan. Understanding the benefits and limitations of each option helps you make an informed decision that supports your specific financial needs.

You don’t necessarily have to choose between FEGLI and term life insurance from a private company. You can get both if needed.

FEGLI is term life insurance for federal employees. Although it’s affordable, it doesn’t provide much coverage. Breadwinners with multiple dependents who may need help paying for college tuition or a mortgage will require more robust, extensive coverage, which you can achieve with private term life insurance. Explore your FEGLI vs. private term life insurance options to see whether having both is in your best interest.

When selecting life insurance, several factors come into play, impacting the type and extent of coverage you need. Understanding these elements ensures that your life insurance aligns with your financial goals and life circumstances. Here are some key considerations to guide your decision-making process.

Assessing Your Financial Situation and Coverage Needs

Evaluating your financial responsibilities and the needs of your dependents can help determine the right coverage amount. Consider factors like your current debts, ongoing living expenses and future financial obligations like children's education. The goal is to ensure that your policy provides enough financial support to maintain your family's lifestyle and meet their future needs in your absence.

The Role of Age and Health in Determining Premiums

Your age and health are pivotal in calculating insurance premiums. Generally, younger individuals in good health benefit from lower rates, as they pose a lower risk to insurers. Pre-existing medical conditions or lifestyle choices affecting health can increase premium costs. Understanding this relationship helps in planning when to secure a policy and estimating the cost.

Long-term Financial Planning and Retirement Considerations

Your life insurance should be a key component of your long-term financial plan, particularly with retirement in mind. Consider how your insurance needs might change over time, such as decreasing debts but increasing medical expenses.

The Importance of Comparing Rates and Policies

Researching and comparing different life insurance policies and their rates is important This process allows you to find the most suitable coverage at the best possible price. Look into various insurance providers, policy types and coverage options. Comparisons should also consider the insurer's reputation, customer service and policy flexibility. Making an informed choice means finding the lowest price and the best value for your specific needs.

If you aren’t sure about FEGLI vs. term life insurance or want to know more about each, review our frequently asked questions below.