Are you one of the roughly four million people in the United States who is employed by the federal government? If so, chances are you are part of FEGLI – the Federal Employee Group Life Insurance plan. We understand that you may not pay close attention to your FEGLI policy. If life insurance is a significant part of your estate planning, however, it may be time for you to change your tune.
The reason for this is simple. FEGLI is regulated by federal law. As such, it may trump your state’s laws regarding how life insurance proceeds are distributed upon your death. As lawyers who specialize in the wrongful denial of life insurance claims, we are contacted frequently by purported life insurance beneficiaries who have received a surprising claim denial letter in the mail. Often, the denial is based on the policyholder’s incorrect assumptions about how FEGLI policies work.
In this article, we try to help readers understand why it is so important to stay on top of your FEGLI coverage. This is especially true if, as noted above, that life insurance policy is a significant part of your estate planning strategy.
The importance of naming your current, intended beneficiary
Many times, state laws try to anticipate how the citizenry wants life to be structured. A perfect example of this comes from life insurance laws. Specifically, many states have laws on the books mandating that a person’s current spouse will be his life insurance beneficiary – even if policy documents still name a former spouse as the beneficiary at the time the policyholder dies.
States enact laws like this for a simple reason. Many people who obtain life insurance policies rarely think about that policy once it has issued. For example, premiums may be paid by an employer or are automatically deducted from the insured’s bank account. The truth is, after filling out the initial paperwork to obtain a life insurance policy, there are very few reasons to consider it again.
What this means in today’s society – where between 40% to 50% of marriages end in divorce – is that many people forget to change their named beneficiary when significant life changes occur. Consequently, when a policyholder who has been married multiple times passes away, there can be bitter legal battles between a former spouse (who may have been named as the policy beneficiary decades earlier) and the current spouse (who is probably who the deceased would have wanted his life insurance payout to go to).
As noted, many states try to avoid these costly lawsuits by legislating that life insurance proceeds must – as between a former spouse and current spouse – be paid to the person married to the policyholder at the time of death. It is the type of legislation that is intended to bring equity and justice to a situation that can produce seemingly unfair results.
The feds see things differently
For the millions of Americans who receive life insurance coverage through FEGLI, however, those state laws are of no use. That is because FEGLI regulations clearly mandate that policy payouts will be paid to the beneficiary named in the policy – period. In this instance, federal laws have been held to trump those state laws that protect current spouses.
Accordingly, policyholders with FEGLI coverage have to be more diligent than those with private life insurance policies when it comes to making sure their beneficiary designations are current. To drive the point home, consider the following two examples.
Example #1: Life insurance policyholder with private insurance
Policyholder #1 (“PH #1”) had a life insurance policy that he received as a benefit of his employment with a private accounting firm. At all times since the policy issued, premiums were automatically deducted from PH #1’s paycheck. The policy originally issued 10 years ago, when PH #1 was married to Wife #1.
Seven years after the policy issued, PH #1 and Wife #1 divorced. One year after that, PH #1 married Wife #2. PH #1 never even thought about his life insurance policy during the divorce or when he was planning to marry Wife #2. Consequently, he never changed the named beneficiary under that policy.
One year later, PH #1 died. Both Wife #1 and Wife #2 submitted claims to his life insurance company. Because PH #1 had private life insurance and lived in a state that recognizes the current spouse as the only proper beneficiary (as between those two choices), Wife #2 ultimately received the policy payout, as PH #1 would have intended.
Example #2: FEGLI policyholder
Policyholder #2 (“PH #2”) lived in the same state as PH #1 but worked for the local Veteran’s Administration hospital. Because he was a federal employee, PH #2 received a FEGLI policy as an automatic benefit of employment. The FEGLI policy also issued 10 years ago, at which time PH #2 designated Spouse #1 as his beneficiary.
Assume the same facts apply here. There’s a bitter divorce from Spouse #1 and a remarriage to Spouse #2. Nonetheless, PH #2 never thought to change the beneficiary under his FEGLI policy.
When PH #2 died and both spouses submitted claims under that federal life insurance plan, the beneficiaries got a very different result. Specifically, because FEGLI policies only recognize the beneficiary named in the policy and because federal law trumps state law in this area, Spouse #1 received all of the insurance proceeds. It was definitely not the result PH #2 intended.Of course, not all cases involving FEGLI policies are this cut and dried. We contest FEGLI claim denials all the time. If you are an intended beneficiary and you believe you’ve had a claim wrongfully denied, please call our firm to discuss the situation. While the full body of law regulating FEGLI claims are beyond the reach of this article, its unlikely there are issues we haven’t already litigated. Your consultation comes at no charge and, if we decide to take your case, we won’t charge you a dime unless and until you get recovery from the insurer. Call us today. We’re here to help