Denied FEGLI Claims Due to Termination of Coverage

How can termination of FEGLI coverage affect FEGLI Beneficiaries’ rights?

Employees of the Federal Government are covered by group life insurance called FEGLI.

When they apply for coverage, federal employees are required to complete a Designation of Beneficiary form, identifying an individual as the beneficiary of the life insurance proceeds payable upon their death under the FEGLI policy.

The insurance is valid as long as premiums are paid and the insured remains in the category of eligible participants. If FEGLI coverage is terminated, pursuant to federal law, the previous designation of beneficiary is automatically cancelled thirty-one days after the insurance coverage ends.

Thus, the previous beneficiary ceases to be the designated beneficiary of the FEGLI policy. If the insured whose coverage had been terminated reinstates the policy later, he is required to complete another beneficiary designation form.

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Who Receives SGLI Benefits When No Beneficiary is Designated?

SGLI beneficiary disputes generally arise out of two or more competing claims filed for the same proceeds of an SGLI policy.

This happens when there are inconsistencies regarding the Designation of Beneficiary Form/Election Form completed by an insured. When no beneficiary is designated on the Election Form, the insurance company will pay the proceeds of an SGLI policy according to the order of precedence set up in the SGLIA (The Servicemembers’ Group Life Insurance Act).

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Federal Court Decides a FEGLI Beneficiary Dispute Case

In a recent FEGLI beneficiary dispute case, the United States District Court in New York reviewed issues of the FEGLI beneficiary designation form, a decedent’s intent in changing beneficiaries and state law claims seeking damages for unjust enrichment, conversion, misrepresentation and promissory estoppel.

In Smith v. Smith[1], the surviving spouse of a FEGLI insured decedent filed a claim for unjust enrichment, conversion, misrepresentation and promissory estoppel against the decedent’s mother after the insurance company paid the mother the FEGLI benefits under the decedent’s FEGLI policy. The decedent was a federal employee and was provided with a FEGLI policy.

Prior to meeting his spouse, he designated his parents as beneficiaries on his FEGLI policy.  His father predeceased him leaving his mother as the sole beneficiary of the FEGLI policy pursuant to the Designation of Beneficiary form signed by the insured in 1992.

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Do Former Spouses of SGLI Insureds Have Valid Claims for SGLI Proceeds?

The question of whether a divorce decree can be considered in an SGLI beneficiary dispute is quite common.

When people get divorced, their life insurance policy is usually incorporated into their divorce decree obligating one or both spouses to maintain their life insurance policy for the benefit of the other spouse and children.

In many cases, a divorce decree obligating a divorcing individual to carry a life insurance policy for the benefit of the former spouse and children will have an effect on how proceeds from a life insurance policy are distributed after an insured’s death. Thus is not the case, however, with SGLI policies.

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3 Cautions Life Insurance Consumers Need to Know

With life insurance companies making obtaining life insurance policies easier, more and more consumers get coverage. There are several things policyowners and beneficiaries need to know when buying life insurance.

1.  No Medical Exam Does Not Guarantee Automatic Payout in the Event of Death

Today many insurers offer policies for lower benefit amounts (usually less that $400,000) without a medical exam.

What consumers need to know is that no requirement for a medical exam does not mean that benefits will automatically be payable in the event of death.

Many companies request pharmacy records and check all medications prescribed to an insured. In addition, questions on an application for life insurance ask about an applicant’s medical history and background.

Life insurance policies have a provision that states that if an insured dies within the first two years of the policy effective date, the insurance company has the right to contest the policy – check the insured’s medical history and background to ensure that all questions on the life insurance application were answered correctly.

If the insurer finds that there was a misrepresentation on the application, life insurance benefits will be denied.

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Life Insurance Policies: Payouts

Life insurance has become one of the most popular long-term financial planning tools. To use it effectively, you need to understand how and when life insurance payouts are made to beneficiaries and how quickly benefits will be paid.

When Payouts Are Made

Usually life insurance benefits are paid after the insured’s death, and after the beneficiary filed a claim with the insurer and submitted a copy of the death certificate and all other necessary documents.

In the majority of cases, insurers must pay claims within 30 to 60 days after they receive all the necessary documents. When a claim is delayed, the insurance company will pay a high interest on the claim amount.

This prompts most insurers to pay the claim on time, however, many claims are still unfairly delayed.

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