Learn why billions in life insurance benefits are slipping through the cracks and how to track them down.
At NICRIS, we’re concerned with the number of people who don’t have life insurance in place. But what may be more worrisome is when they do have it, but the benefits aren’t collected. When the money due to beneficiaries isn’t picked up, it gets absorbed by the state in which the deceased last resided as unclaimed property, a process referred to as escheatment.
Insurers say this is a relatively rare occurrence, but the problem is common enough to represent billions of dollars in unclaimed policies. The situation is rooted in several issues connected to someone’s passing, some of which can be overcome with a little effort.
Why life insurance benefits go unclaimed
The loss of a loved one is traumatic, and paperwork is often the last thing on someone’s mind. This can result in the proper forms never being completed, and an insurer can’t pay out if they weren’t notified of a death. Escheatment isn’t immediate. It will occur after a set period that varies between states but is usually 3 to 5 years.
If the paperwork following a death is your responsibility, we recommend this Insurance Information Institute (III) guide on filing it correctly. Paperwork is also essential when it comes to changing your address. Forgetting to inform insurers, banks, and other institutions of a new home makes beneficiaries harder to track down. Another specific concern is failing to provide a Social Security number. The government and insurers use it to discover who’s living and who’s passed, as well as how to locate individuals.
In addition, some insurance companies merge with others or no longer exist, making it difficult to impossible to file a successful life insurance claim. Finally, beneficiaries are sometimes unaware they’ve even been named in a policy. There’s nothing they can do to track down the assets if they’re oblivious to their entitlement. This puts the onus squarely on the insurer to seek them out and bestow the benefit.
Has the insurance industry done anything about this problem?
There have been efforts for almost a decade to address the issue of unclaimed benefits. In 2011, the National Conference of Insurance Legislators (NCOIL) passed a resolution in support of a model law titled the Unclaimed Life Insurance Benefits Act. Though this model law received considerable criticism at the time, it was accepted by the organization in an amended form in 2014.
The Act pressed for greater industry use of high-level records such as the Social Security Death Master File (DMF) to verify a death. Not all insurers use the DMF to certify a policyholder’s death, possibly because the information isn’t free to access and could amount to an ongoing expense as more and more clients pass away over time.
The Act pushes insurers to make concerted efforts to track down beneficiaries after the confirmation of a policy holder’s passing. It also contradicts a common 45-day time limit on life insurance claims, which is viewed as an unrealistic expectation.
Over the following years, the American Council of Life Insurers (ACLI) kept a close eye on unclaimed benefit developments in highly-populated areas like California and New York as those states began tracking and distributing unclaimed payments. Some of these payouts had been on hold for over 50 years.
This progress led to calls for a national standard, with 20 states already having enacted laws based on the Unclaimed Life Insurance Benefits Act by 2016—the year in which the ACLI published an updated guide toward a national framework. As of 2019, 34 states had passed unclaimed life insurance benefits legislation.
How to track down unclaimed life insurance benefits
There are organizations to turn to if you feel you may be entitled to an unclaimed policy payment.
The National Association of Insurance Commissioners (NAIC) provides a helpful resource in its Life Insurance Policy Locator Service.
Through this tool, the NAIC can assist beneficiaries, legal representatives, or executors as they seek information about possible unpaid benefits. It may take up to 90 days to receive a response from NAIC, however. The National Association of Unclaimed Property Administrators (NAUPA) may also be of assistance.
Contacting the deceased’s employer is another means of discovering if they had a work-based life insurance policy. A review of the deceased’s income tax returns, bank receipts, and any insurance-related mail can also reveal important policy information.
Prevention is better than a cure. So, if you have a life insurance policy in place, be sure to do two things. First, inform those you’ve named as beneficiaries and provide details on your insurance company and how to contact them. Second, store your life insurance documents for security and ease of access. These steps will go a long way in preventing lost benefits intended for your loved ones.
NICRIS Insurance focuses on providing clients with the appropriate suite of products to protect them, their interests, and their loved ones. If you need some insurance advice or would like a free, personalized insurance review, just drop us a line.