There’s one truth that life insurance policyholders and prospective policyholders are not aware of: many life insurance policies don’t get paid out. Many people invest thousands of dollars into a permanent life insurance policy, only to have this money go to waste if they can’t make their premium payments on time.
The more unspoken life insurance policy flop is when someone pays all their bills on time and passes away, but nobody claims the benefits. This doesn’t seem plausible; if someone is making payments for years, don’t his or her beneficiaries get a payout? The answer: not always. While this nationwide issue is slowly but surely becoming a problem of the past in many states, many people’s policies still go unclaimed. What are some ways you can take to make sure your life insurance policy -- and the policies of your loved ones -- don’t go unclaimed? How is this an issue in the first place?
Why Life Insurance Goes Unclaimed
The main situation in which beneficiaries don’t receive a payout after their heir passes away is when the life insurance policyholder hasn’t told them about the policy. Even if your life insurance policy is active at the time of your death, it may be wasted if you don’t tell your beneficiaries about it.
The State Gains Control
It’s usually the responsibility of the beneficiaries to come forward in claiming the policyholder’s life insurance payout; the insurance company may not reach out to the beneficiaries following the policyholder’s death. The insurance company expects the beneficiaries to come over for one reason: the insurer might not be aware of the fact that the policyholder has passed away. If the insurance company does discover that the policyholder has died, however, but does not have a way to contact the beneficiaries, the insurer will turn any unclaimed benefits over to the state.
After their policyholders reach a certain age, insurance companies will assume that they have died. If the policyholder reaches the limiting age -- born 120 years ago -- and has not been in contact with the insurance company for some time, the insurance company will start to proceed with the claims process. If they can contact the policyholder’s beneficiaries, they will, but if they don’t have any contact information, the policy will be in limbo. States allow insurance companies a grace period of three years to contact the beneficiaries. Once three years have passed, the insurance company will be required to turn the policy over to the state.
Progress on the State Level
State governments are aware of and concerned by the number of life insurance policies that go unclaimed. According to the National Association of Insurance Commissioners, state legislatures have required insurance companies to conduct database searches as a means of increasing outreach to beneficiaries. The Model Unclaimed Life Insurance Benefits Act, which was passed in 2011 and revised in 2014, has worked to decrease the number of unclaimed life insurance policies. Under this act, insurance companies are required to use the Social Security Administration Death Master File to cross-reference their list of policyholders. From there, they must make an effort to seek out the beneficiaries of any deceased policyholders they find.
At this point, 27 states have adopted this act, but as time progresses, there’s no doubt that more states will join this initiative. Keane Unclaimed Property has procured a map of the country, differentiating the states that have taken on this legislation and the states that have not. While the legislation is pending in 7 states -- Louisiana, Massachusetts, Minnesota, New Jersey, Oklahoma, South Carolina, and Wisconsin -- it is active in many other states nationwide, including Texas, New York, Pennsylvania, Nevada, Montana, Georgia, and many others.
Think You’re Entitled to an Unclaimed Policy?
If a loved one passed away recently and you truly believe he or she had a life insurance policy that hasn’t been claimed, you could use state and private search services. You can even go directly through the National Association of Insurance Commissioners to submit a request. In order to maintain the policyholder’s identity, only direct family members or beneficiaries are able to perform a full search.
If this doesn’t work out for you, you’ll need to go for the Plan B options. First, keep an eye on the deceased’s mail; if he or she receives mail from a life insurance company, you’re in luck; however, this isn’t a proactive, speedy process, so may not be the best option for you. You can also reach out to the deceased’s company or workplace to see if he or she enrolled in an employee life insurance policy.
If you’ve received the name of the insurance company, your next step is to call them. You’ll need a copy of the death certificate available to them. If the insurance company confirms this person is a policyholder who has made all of his or her payments, you should receive your payout in the next few weeks.
If you have a life insurance policy, make sure you tell your family about it to ensure that it won’t go unclaimed. It might feel like an awkward conversation to have, but informing your beneficiaries about your life insurance policy -- either face-to-face or in the will -- will make sure it doesn’t go unclaimed. Even keeping a duplicate policy statement in a drawer in your home is a decent way to keep your beneficiaries in the know after your death; however, if your home experiences extreme damage, like fire or a hurricane, this paper statement might be lost. Although this is a helpful option, the best way to keep your insurance policy from going unclaimed is to communicate directly with your family and beneficiaries. Even though the Model Unclaimed Life Insurance Benefits Act has made this issue much smaller scale, it’s best to stay prepared.