An interesting article appeared in the Associated Press dated Dec. 16, 2016, in which it was reported nearly 600 Georgians were united with more than $6.6 million of lost or misplaced life insurance death proceeds or annuities. Of course that begs the question how could these unclaimed life insurance death benefits have accumulated to begin with. Let’s explore this to see if we can find a reasonable answer.
When a life insurance policy is issued by an insurance company at least four entities are involved, the insurance company (insurer), the named insured (insured), the policy owner, and at least one beneficiary. Each have contractual rights and duties under the policy issued. Those rights are spelled out in the language of the contract. It is made clear no other legal instrument controls the interaction between the parties.
The insurer by contract agrees to maintain reserves sufficient to pay death benefits, and under some contracts provisions are made for policy loans. The insured agrees he or she has met the health requirements, occupational requirements, recreational requirements, i.e. aviation, scuba or skin diving, rodeo, or other hazardous activities which would have prevented the company from issuing the policy, etc. The owner has shown he or she has a financial interest in the life of the insured and would suffer financial loss. The owner also has the obligation of maintaining premium payments so the policy does not lapse. The beneficiary is the one who stands in line to receive death proceeds. It is interesting to note, when policy is issued the beneficiary must have some relationship to the insured, but after the policy is issued the owner can change the beneficiary to whomever he or she desires. This contract is referred to many times as a unilateral contract. The owner after a contestable period between one and two years has only to keep premium payment current while everything else falls upon insurer to make sure funds are there when needed.
In many instances owner and beneficiary are the same entity, and for the sake of brevity for this article I will address them as being the same.
The policy contract has a section which spells out the requirement for disbursement of death benefits. It would read something like this: Subject to the terms and conditions of this policy and any assignments, We (insurance company) will pay the death proceeds to the beneficiary within 30 days if all the following are satisfied:
- Receipt by Us of the satisfactory proof of Your death
- Receipt by Us of all other requirements; and
- The policy is in force on the date of Your death.
Some of the other requirements requested above would be a certified death certificate, beneficiary statement, requested payout option, and current beneficiary information.
This is a very simple method for transferring the death benefits from the insurance company to the beneficiary, but sometimes there is a snag and those proceeds may end up as unclaimed property at the Department of Revenue in each state.
Here are a few reasons why death proceeds don’t get to appropriate beneficiaries:
1) The life insurance company and insured simply lose track of each other. Because we still do much of our corresponding by U.S. mail it is important you notify insurance company of your mailing address. U.S. Postal Service will only forward first class mail for one year. The sender is not aware mail is being forwarded because the Post Office does not inform the financial institution of the change. When you change mailing address, let your insurance company know immediately!
2) Life insurance company doesn’t know the insured died. They usually don’t know that until they are informed, usually by the policy’s beneficiary. If the policy is still in a premium paying status and the payment stops, the insurance company has no reason to assume the insured has died. This is particularly complicated because many policies have a provision called automatic premium loan feature so when a payment quits coming in the APL immediately engages to keep the policy from lapsing inadvertently. Be sure beneficiaries know that when the insured dies they are to notify the insurance company. Provide beneficiary with policy number and contact information for the insurance company.
The Social Security Administration has the closest thing to a list of all deceased, but it falls short as well since it does not track anyone on railroad retirement, federal employees, nor state employees.
3) Beneficiaries don’t know that a life insurance policy exists under which they are beneficiaries. A case in point. In my immediate family one of my brothers has a very dear friend whom he dated through high school but never married. When she purchased a life insurance policy she thought so much of my brother and his family she switched beneficiary from her brother to my brother’s two sons. I am certain they don’t know that, so–tell beneficiaries that when you die they will be entitled to death benefits. Provide them with the name and location of the insurance company and the policy number.
4) The insurance company is unable to locate the policy beneficiaries. So many times when applications for insurance are written, beneficiary information is not properly completed and from the get go a problem has been created. Also, ambiguous titles may be used, i.e. “my wife,” “ my children,” or “my estate.” Be sure to take the time as insured to provide detailed personal identification about every beneficiary to the insurer so they can be easily located and their identity confirmed. Update your information regularly to keep the insurance company informed.
5) The original life insurance company no longer exists or cannot be located. Due to the multi decade length of a life insurance contract, your originating company may change its name, its corporate headquarter location, or may be bought out by another company. Unless you as the insured keep good records of the changes, it could be difficult for your beneficiaries to collect the death benefit you intended for them to have. Keep a record of any notices regarding changes to the name, location, or contact information for your life insurance company.
Georgia’s Department of Insurance has established an insurance policy locator application which in the first year of use saw 3362 consumers searching for unclaimed monies. Other states have provided tools to assist people in their searches. One of the most helpful has been the Social Securities “Death List” which identifies all people who were receiving social security benefits that have passed away. This could be a good jump off spot for you to begin if you feel you may be the beneficiary of some unclaimed property or the beneficiary of someone’s life insurance policy. Happy Hunting!