A recent ruling in California uncovered the seedy underbelly of the life insurance industry: unclaimed death benefits. States currently seek billions of dollars in unclaimed life insurance payouts from some of the largest financial services firms in the world, including John Hancock, MetLife and Prudential. And it's money that should be in the hands of policy beneficiaries and their families.
Big states, including Florida, New York and California, began investigating insurance companies five years ago and found that the companies were not always paying death benefits to beneficiaries who failed to file claims. While the average policy size is less than $1,000, in aggregate the insurance companies have failed to pay millions in death benefits. What's amazing is that insurance companies have (for years) had access to databases and technology to track when policyholders die, but they still take their time notifying beneficiaries.
The California ruling came after a five-year investigation regarding how insurance companies complied with the state's unclaimed property laws, which require businesses to send lost or abandoned property to the state, after three years of inactivity. California found that the insurance companies failed to notify the state about unclaimed death benefits, and in some cases, insurance companies failed to notify beneficiaries.
But it's not just California. In 2011, the New York Times reported that New York has received nearly $400 million in unclaimed death benefit money since 2000. And the Miami Herald reported this summer that Florida has demanded five major insurance providers hand over more than $75 million in unclaimed benefits. Between 2011 and 2012, John Hancock, MetLife, Prudential, AIG and Nationwide reached settlements with the state for failing to notify beneficiaries.
As a life settlement provider, we track those insured by life insurance policies that we purchase, with the same goal of insurance companies. While it is not a simple task, it also isn't nearly as difficult as insurance companies would lead us to believe. The Social Security Administration's Death Master File has been available for many years and is just one of many tools available to track policyholders. We use a combination of databases and methodologies to monitor the status of each policyholder. If we can do it, certainly the insurance companies can as well. They certainly know how to find you when your bill is due.
So what can you do about it?
Keep good records and pass them along to your beneficiaries. If you have a life insurance policy, be sure to keep a copy in a safe place and make sure your beneficiaries know it exists. If you purchased the policy so that your spouse will be financially protected or to ensure that your kids can attend college, let them know the policies exist, what the terms are and where the policies are located. Believe me, even though it is a morbid subject, your beneficiaries will appreciate knowing the details.
Ask your relatives if they are insured. Though it might feel like an uncomfortable conversation to start, if your parents are elderly, ask them if they are insured. Parents who bought policies to protect their kids may have forgotten about it or just never thought it was important to let their kids know. Most likely, your parents will want you to know about their life insurance. They bought it for their beneficiaries, and they know they can't take their money with them.
Update your records with your life insurance company. As part of your annual financial check-up, when you are budgeting, reviewing your insurance coverage and reviewing your plans, make sure your insurance company has your current information. This is also a good time to review who your beneficiaries are and make sure you are still happy with how your insurance will be paid out when you pass away.
While recent legal action by states should lead to better business practices by insurance companies, we know that some death benefit payouts will fall through the cracks. Anyone who has invested time and money in a life insurance policy owes it to themselves and their beneficiaries to help ensure their death benefits are paid out on time. Sadly, we can't rely on insurance companies to do this on our behalf, so customer vigilance is a must.