Have you reviewed your policy beneficiary recently?

Thursday, May 28, 2015

By Cassi Teti

On March 15, 2015, a New Jersey higher court ruled on a life insurance beneficiary case, Evanisa S. Fox v. Lincoln Financial Group and Mary Ellen Scarphone, in favor of the defendant based on lack of compliance to properly change the beneficiary of the insurer’s policy.

Evanisa, a Brazilian native, married Michael in July 2012 and shortly after he filed for both an I-30 petition for US citizen sponsorship and I-864 Affidavit for support agreeing to support her 125% above the poverty level. What Michael ignorantly neglected to do was change his life insurance beneficiary from his sister, Mary Ellen Scarphone, to his wife. As any drama would unfold, Michael unexpectedly died in a work-related accident a few months after he married Evanisa but just shy of her receiving US citizenship. Prior to Michael’s death, he failed to submit a change of beneficiary form to Lincoln Financial (his provider) or take any sufficient action to name Evanisa as his new beneficiary.

Both Evanisa and Mary Ellen applied for Michael’s life insurance proceeds and since he never changed the beneficiary, his sister, Mary Ellen, was rightfully awarded the policy claim. Evanisa filed a case against Mary Ellen and Lincoln Financial, stating she had rights to his life insurance policy urging courts to adopt a “bright-line” rule. She claimed that her marriage to Michael created a presumptive right to his life insurance benefits, just as a divorce would revoke those rights. Evanisa was ignoring the fact that life insurance policies are not as easily shared as they are discontinued. Only under very limited circumstances would a designated beneficiary, in this case his sister, be denied proceeds and granted to another. There are some states that do allow a “substantial compliance” in changing beneficiaries, meaning even though the insurer did not complete the process to change beneficiaries, they made every reasonable effort to do so. Two criteria must be met to be considered substantially compliant:

  1. a clear expression of the insured's intention to change beneficiaries
  2. a concrete attempt by the insured to carry out his intention as far as was reasonably in his power, i.e., undertaking positive action which is for all practical purposes similar to the action required by the change of beneficiary provisions of the policy.
    1. a. Verbal intent to change is NOT valid!

In this case, Michael did not meet either of those criteria; therefore, Mary Ellen was the lawful recipient of his life insurance policy.

In her final attempt, Evanisa tried to defend her case by using the I-30 and I-864 Forms as evidence to Michael supporting her and justifying the life insurance inheritance. This also did not hold up in court because the I-864 Affidavit for Support explicitly states at the time of application that the support is terminated if death occurs. Therefore, when Michael died, his estate was no longer responsible for supporting Evanisa.

This case is a reminder to continuously review and update your policies in compliance to your insurance company’s specified procedures. Marriage and divorce are two major events in a client’s life that unquestionably facilitate a policy review. Not to forget about the annual reviews that should occur at your policy anniversary date. Accordingly, agents have a due care obligation to inform and remind clients about beneficiary rules and other policy requirements. It is imperative to not become lazy with your policies, always telling yourself you’ll get around to it. If changes in your policy are desired, act now! Be sure to follow all procedures and compliance, first and foremost, putting it in writing. Contact your agent and get the ball rolling before it’s too late.

If you have a policy with us and are unsure about who your beneficiary is or just have questions regarding the process, give us a call. 301-656-0660.