12 Oct Why you must designate your life insurance beneficiary
Failing to designate your life insurance beneficiary – consequences!!
A man’s failure to change his Federal Employees Group Life Insurance beneficiary from his former wife to his current wife resulted in the former wife receiving the insurance money. As a federal worker, Warren Hillman, had life insurance coverage. He designated his then-wife, Judy Maretta, as the beneficiary of his life insurance proceeds. A federal statute provides that the designated beneficiary takes precedence over any other recipient. (5 U.S.C. §20-8705(a)). He then married Jacqueline Hillman, but never changed the beneficiary of the life insurance policy.
Upon his death, his former wife applied for and received the life insurance proceeds. The wife-at-the-time-of-death sued the former wife in Virginia state court. She argued that a Virginia statute which provided that a divorce revokes the beneficiary designation in life insurance contracts made her the proper beneficiary. (Va. Code §20-111.1(A)). In recognition that the Virginia law might be pre-empted (over-ridden or “trumped”) by federal law, another section of the Virginia statute allowed a current spouse to sue a former spouse for the proceeds received under a life insurance policy. (Va. Code §20-111.1(D)).
The issue in the case was whether section (D) was also pre-empted by federal law. The answer is – yes – the purposes and objectives of Congress in passing the federal laws on beneficiary designation (that the named beneficiary receive the benefits) cannot be overridden by a state law that makes the designated beneficiary liable to a third party for the proceeds.
At first blush this may seem unfair to a current spouse whose spouse forgets to change the beneficiary designation. However, it creates a “bright line” rule (one that is clear, even if the result may seem unfair). Specifically, the federal statute pre-empts the state law, and whoever is the named beneficiary gets the insurance proceeds.
What this means to you is that you must always update your life insurance beneficiary !! Likewise, you need to have an up-to-date will, so that your property and money go to whom and where you want upon your death. This is especially true for any divorced person. Paullin Law Firm will gladly discuss these issues with you to help you plan your estate.