Ensuring your Money Ends Up in the Right Hands
When Warren Hillman died, his ex-wife, Judy Maretta, collected the $124,558 from his life insurance policy instead of his widow. Hillman v. Maretta, 569 U.S. 483 (2013)
How did this happen?
Hillman and Maretta divorced ten years prior to his death. However, he did not remove her as the beneficiary of his life insurance policy nor did he change the beneficiary to his new wife, Jacqueline Hillman. As the named beneficiary, Maretta received the proceeds. Jacqueline filed a lawsuit arguing the proceeds should end up with her under Virginia State law. The case made it all the way to the Supreme Court of the United States which ultimately awarded the proceeds to the ex-wife, Maretta.
Unfortunately, this case is not rare. While this particular decision was based on the fact the life insurance policy fell under federal law which protected the named beneficiary, there are many other cases where the named beneficiary receives the proceeds despite evidence the decedent would prefer the proceeds go to someone else.
Here are some ways you can educate your employees on how they can help prevent their insurance proceeds from going to the wrong person:
Review beneficiaries on a regular basis.
A good rule of thumb is to review and/or update named beneficiaries on an annual basis. Your employees may want to consider reviewing them at the same time they file their taxes or enroll in their annual benefits.
Review beneficiaries following major life events.
A major life change such as marriage, divorce, the addition of a child, or the death of a loved one could all result in the need to update beneficiaries. Because major life events often trigger other employee benefit changes, encourage your HR department to use this opportunity to review your employees’ beneficiaries.
Read and understand insurance policies and the portions affecting beneficiaries.
It’s possible that beneficiary rules differ from policy to policy. Ensure your employees understand the nuances of each type of insurance they have so there aren’t any surprises. If your employees have questions, have them reach out to their account manager so they can walk the employee through the policy.
When updating a will, review insurance policies as well.
If the will has been updated but not the insurance policy, the beneficiary on the insurance policy will likely receive the proceeds. Insurance policies, such as life, accident, and cancer are contracts and their terms remain independent of a person’s will. This is why it is so important to make sure beneficiaries are up to date on all policies.
Name children by name.
Some older policies read “All my living children” which can be interpreted to mean natural children. Therefore, if the policy holder intended to include stepchildren, they could be excluded. Naming the children by name will eliminate confusion.
Things to consider when naming minors:
- Proceeds cannot be paid to the legally incompetent. Minors fall into this category.
- Another person would need to be appointed as guardian of the estate of the minor and, in some circumstances, they must provide an annual accounting of the funds to a judge.
By ensuring policies are up to date, your employees could potentially save their family members time and money from the legal fees associated with fighting for insurance policy proceeds. One way American Fidelity helps our customers with this is by performing a Dependent Verification Review during your annual enrollment. While a Dependent Verification Review is primarily intended to ensure employers are not insuring ineligible dependents on their medical plan, we also take this time to review beneficiaries on all policies, update personal information and more. Read more about the Benefits of a Dependent Verification Review.
This does not constitute legal advice and we are not serving as legal counsel. Such determinations will almost always be directly determined by the individual facts, circumstances, and controlling law of the appropriate jurisdiction.