Lost Life Insurance!

“Dad said he had life insurance but we can’t find a policy and don’t know what company it was with”! “My husband told me not to worry because he had a life insurance policy that would take care of everything, but now that he’s gone I can’t find any record of that!” This is way to common for a day and age when we electronically watched every minute of the day. If I do a search for cruise information within minutes I will be getting email and pop ups about cruises. No one should die and their beneficiaries not be able to easily track down. That same type of technology should be able to notify a beneficiary what life insurance their deceased family member had in force as soon as the government’s social security death master file is updated.

How good is the SS death master file? It is updated weekly. It’s thorough because the last thing the government wants to do is keep sending social security checks to people who are dead. Life insurance companies have been using it for years to make sure that when an annuity owner dies they can automatically take whatever action the annuity requires. It might mean that the amount of the monthly payout changes and goes to the widow. There might not be any change at all other than the widow receiving payments in her name. But the big one we all know life insurance and annuity companies want to make sure they catch is when an annuity calls for payouts to stop upon the death of the annuitant. They want to be sure they aren’t paying money out that they contractually aren’t required to. It wasn’t that long ago that some major life insurance companies were fined huge amounts of money because they were using “the list” for annuities but not contacting families when the deceased also had life insurance in force through them. They would just stay real quiet about that or just not cross check it all the time aware that it is a very common thing for people to have life insurance and annuities with the same company.

Let me digress a minute. It’s no secret that the reason life insurance can be purchased at the low prices available is because of the lapse rate in life insurance. When life insurance actuaries are determining the price of a policy they aren’t just looking at your age, sex and health, but factoring in how many policies lapse without payment. That can be because they came to end of term and don’t need the insurance. That can be because they’ve decided they no longer believe in life insurance. It can be because a life insurance agent sold them an overpriced, under performing indexed universal life or whole life policy. It can be because, as I noted in another post, companies like Protective Life don’t feel like they need to send out late payment notices! No matter the reason, policy lapse is one of the largest factors in the historically low prices we see for life insurance today.

So, do life insurance companies also factor unclaimed life insurance into their actuarial computations? We know that there are billions of dollars in unclaimed life insurance proceeds mostly because of the reasons covered above, lost policies. Could life insurance companies be so unscrupulous as to have an assumption built into their pricing that X amount of life insurance will just never be claimed? Could it be that even though they have the means, the social security master death file, to check weekly on policy owner deaths, that they just sit on money from unclaimed life insurance? Even though it doesn’t appear that companies factor unclaimed proceeds into pricing we do know a few things:

1. If a life insurance company knows their insured client has died, they don’t do anything to pursue the beneficiary or family to instigate a claim. This is even in the light of the fact that when a claim is filed the company would have to retroactively pay the death benefit and interest from the date of death. Why wouldn’t they track down beneficiaries when it would seem to be a way for them to pay less money?

2. In most states, if the company knows someone has died but no claim has been filed within 7 years, the proceeds are turned over to the state of residence of the last known address of the insured. There is no statute of limitations on filing death claims. In these instances the company is only bound to pay the death benefit with no interest from the time of death to the state. That answers the question in number 1. If they can make it to 7 years they will have been able to use the money to make money for 7 years and get out of paying interest.

3. If the life insurance does not know that an insured client has died and they have a paid up policy and no claim is filed they just never pay out (or keep) the death benefit. Information on the life insurance policy should be on file with the company forever in these instances so a family that finds an old policy could theoretically file a claim 50 years later and the company would owe the death benefit plus interest. With larger companies this is a huge pool of money and it’s not clear when or if this money is simply folded into the bottom line or taken out of the “could be claimed” column on the balance sheet.

Bottom line. I’m digging for more information on this because I literally get calls daily on this very subject, how to track down a lost policy or find out if any policy existed at all. The technology is there to never let another death go by without a life insurance claim on an in force policy so my goal is to find out if it is being used, if it is required to be used, and if not, why not? If you have any questions please call or email me directly. My name is Ed Hinerman. Let’s talk.