Federal Employees’ Life Insurance Beneficiary Choice Trumps State Laws

life insurance

The beneficiaries chosen by federal employees in their government-sponsored life insurance policies will now trump any state laws that could change how benefits are paid, according to a new ruling made by the U.S. Supreme Court on Monday.

After an initial lawsuit adjusted a deceased federal employee’s chosen life insurance beneficiary, the federal government determined that no state is allowed to rule for changes on any federal employee’s policy after death.

Ruling to Change Federal Employee’s Life Insurance Policy Overturned

The U.S. Supreme Court ruled this week that the federal law governing the Federal Employees’ Group Life Insurance (FEGLI) Program — a term life insurance program offered to federal employees — would override any provisions under individual state laws.

The case before the U.S. Supreme Court involved an employee who named his then spouse as the beneficiary of his FEGLI, but then divorced, remarried and did not change the beneficiary designation.

At the time of his death, his former wife received nearly $125,000 in benefits. His current spouse filed a lawsuit in a Virginia state court under a state law designed to give a current spouse the right to death benefits paid to a former spouse in a similar situation.

While the lower Virginia state court ruled in favor of the second wife, a higher court in the state overturned the ruling, noting that the federal law preempted the state law. The U.S. Supreme Court agreed with the higher court.

The Virginia law “interferes with Congress’ scheme, because it directs that the proceeds actually ‘belong’ to someone other than the named beneficiary by creating a cause of action for their recovery by a third party,” Justice Sonia Sotomayor wrote for the court.

The only exception to the ruling is if a federal employee files to change a beneficiary and dies before the change is actually made.

Making Sure that Your Life Insurance Beneficiary Is Paid Properly

This lawsuit brought to light the importance of updating a life insurance policy when life circumstances change.

In this case, the husband remarried and either failed or chose not to change his insurance beneficiary. While one can only speculate whether or not the oversight was intentional, there’s no doubt that some people simply forget to make this important adjustment.

It’s for this reason that life insurance policyholders should always contact their insurer when any of the following circumstances have occurred:

  • Divorce
  • Marriage
  • A child born
  • Significant increase or decrease in income
  • Acquired substantial long-term debt

The key is to quickly make policy changes after experiencing a life adjustment so that the appropriate person is always paid and the correct amount of money is always issued. Being proactive and making that call when necessary can avoid the difficult situation faced by the Virginia widow.

(Image courtesy of Salvatore Vuono /FreeDigitalPhotos.net)