We recently wrote about life insurance policies in our Pennsylvania Probate and Estate Blog. Warnings were given in relation to beneficiary designations and the possibility of unintended consequences. For instance, naming a minor child could cause problems because insurance company policy often prohibits direct distribution to minors.
Another mistake that was discussed was the failure to keep designations up-to-date as life changes. It is easy to allow these warnings to slip through one ear and out the other or to put the "update life insurance policy" task on the bottom of a to-do list, but one real life example of a beneficiary blunder puts the warning into perspective.
The story began in Virginia when a couple said their "I do's." As with most married couples, he named her as the beneficiary under his Federal Employees' Group Life Insurance policy.
Well, as happens with a lot of couples, life changed, they grew apart and filed for divorce. After the divorce was finalized, he took the walk down the aisle one more time. He spent the rest of his life with the second wife.
After his death, the estate was administered and the proceeds from the life insurance poicy were paid out. We can't guess as to this specific marriage, but in most cases a man or woman doesn't want their ex to end up with more than was bargained for in the divorce settlement. That is why the second wife was most likely a bit surprised when the first wife ended up with the insurance proceeds.
When the second wife took the issue to court, she cited a Virginia law that set out what to do in these cases. The law allowed the current wife to have the prior-spouse's beneficiary designation revoked. Every court in Virginia where the claim was heard agreed with the law -- all the way up to the Virginia Supreme Court.
The United States Supreme Court had authority over the ultimate decision as it was a federal employee policy. That court disagreed and the first wife ends up with 100 percent of the proceeds all because the policy designation had not been updated.
Source: The Huffington Post, "Supreme Court Life Insurance Decision: Virginia Man's First Wife, Not Second Wife, Gets The Money," June 3, 2013