Protecting Your Life Insurance Beneficiaries

Over the last month large insurance companies have settled with several states to pay out millions of dollars owed on life insurance death benefit claims. Basically several states have sued large insurance carriers and AIG, Prudential, Nationwide and several others have agreed to settle claims that they haven’t done all they could to locate beneficiaries who haven’t claimed life insurance death benefits. Going forward insurance companies will be required to check their data against social security records to locate beneficiaries. If they can’t locate beneficiaries, they will hand over the death benefit proceeds to the states’ unclaimed funds division. This is good news for consumers as insurance companies will be required to do more to find beneficiaries and provide them with money that is rightfully theirs.

What Can You Do to Make Sure Beneficiaries Get Your Life Insurance Proceeds?

Here are some things you can do to make sure your life insurance death benefit proceeds can get to
your beneficiaries as quickly as possible:

Make sure to include a social security number for your beneficiaries:

Some life insurance company applications won’t require you to list a social security number for your life insurance policy’s beneficiaries. Even if  the company you apply with doesn’t require it, you should list beneficiary names and social security number. This will make it easier for insurance companies to locate them should they need to find them.

Review all policies:

Review all your current life insurance policies. That means if you have individual policies and your policies through your employer. Review that you have beneficiaries selected and social security numbers listed for them. Reviewing your policy every couple of years is a good idea anyway since you might want to make changes to your beneficiary designations anyway.

In addition make sure to update any changes on your policy. For example if you have moved you will want to update your address with the life insurance company. This will insure that you don’t miss a bill from the company and let your policy lapse, and also that your beneficiaries can potentially find mail from the insurance company and discover your policy in case they didn’t know about it.

Keep your policy in a safe place:

Keeping your policy in a safe place where others will be able to find it is also important. If at worse case your beneficiaries don’t know a policy exists, at least they will be able to find it if you keep it with other important documents, such as your will, insurance policies, etc. I suggest you keep a fire proof safe in your home, where these important documents should be kept.

Tell your beneficiaries about your policy:

While people often don’t want to tell their beneficiaries that they have money coming to them when they pass, it is a good idea to tell your beneficiaries about your life insurance policies. You don’t need to tell them how much life insurance you have if you choose not to, but you should at least tell them you have a policy and let them know which company your life insurance policy is with.

If you follow the tips in this blog post your beneficiaries won’t have a problem collecting on your death benefit proceeds and you can have the peace of mind that they are properly protected and can access the money that you’ve left for them.
How important is all this? Let's just say, you can avoid a big mess.

When Planned Beneficiaries Go Wrong

Life insurance is bought to provide protection, comfort, and money to loved ones in the event of your loss. However instead of leaving loved ones without financial worries, you could leave them frustrated, angry, and in a court of law.
A big mess is exactly what happened to Warren Hillman in a case that went all the way to the United States Supreme Court in the case of Hillman v. Maretta.

Warren Hillman had a group life insurance policy through his employer - he worked for the Federal Government and had a policy through the FEGLI - Federal Employee Group Life Insurance. In 1996 Warren named his wife Judy Maretta as the beneficiary of the policy. Warren and Maretta got divorced in 1998, and he remarried Jacqueline Hillman in 2002. In 2008 Warren passed away unexpectedly without changing the beneficiary on his Federal Employee Group Life Insurance policy. His ex wife, collected the proceeds of the insurance, which totalled over $124,000.

The story however gets more interesting. This happened in the state of Virginia (where there are many Federal Employees). In Virgina there is a law that states that a divorce revokes the beneficiary designation and that an ex-wife is responsible to give the proceeds of the life insurance to a new spouse or the kids of the insured person that passed away.

Jacqueline Hillman sued Marietta in Virginia Circuit Court under Section D of the Virginia statute and initially won the case - that Marietta had to pay her the proceeds of the life insurance. The case then went to the Virginia Supreme Court and the ruling of the lower court was reversed, granting the proceeds to Marietta. The decision was based on the fact that FEGLI was created by Congress under Federal Law and that State law should not override Congress.

The case went all the up to the United States Supreme Court. The Supreme Court ruled that the funds belong to Marietta - the ex wife, because the law congress enacted in regards to FEGLI, preempts a State Law.

We can learn a very valuable lesson from this case. That is - review your life insurance policies annually, and update your beneficiary designations accordingly. Any time you have a life changing event, whether that is getting married, having a child, getting divorced, etc.. you need to review your life insurance policies. If you have life insurance in place and haven’t taken those policies out of the cabinet in a while, its a good idea to pull them out and review them. Review your beneficiaries, take a look at your death benefit, your premiums and if your policy is set to lapse or expire. You may be surprised at what you find, and your family may thank you one day for being responsible with your life insurance policy.