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.