States are investigating whether insurance companies are doing enough to find out if life insurance policyholders have died and to pay the beneficiaries.
The National Association of Insurance Commissioners (NAIC) has started looking into the way big life insurance companies pay death benefits on life insurance policies – or rather, fail to.
Thus far at least three states – Florida, New York, and California – have announced investigations of their own. The issue is whether some companies have been holding onto death payments by waiting for a beneficiary to file a claim, rather than doing a simple computerized check through the Social Security system to see whether a policy-holder has died.
By law, unclaimed life insurance proceeds should revert to the decedent’s state’s unclaimed property fund, where they will be held indefinitely until a valid claim is filed. Unlike insurance company records, state unclaimed property records are easily searched by any consumer with access to the Internet (see our story Treasure Hunt: Tips to Finding Unclaimed Cash.).
By keeping the proceeds of these life insurance policies, insurance companies are making it harder for those who deserve this money to find it. They may also be violating state unclaimed property laws.
From this NAIC press release…
“State regulators are committed to reviewing the full extent of these practices in the life insurance and annuity industry,” said Susan E. Voss, NAIC President and Iowa Insurance Commissioner. “ We intend to coordinate multi-state examinations to effectively utilize our state resources in achieving resolution of these issues.”
Florida Insurance Commissioner Kevin McCarty said the total value of unpaid life insurance benefits could help beneficiaries and state unclaimed property funds recoup “north of $1 billion.”
The insurance industry can’t claim ignorance of using the Social Security system to find out if their policy holders have died. They routinely tap the same system to see if they can stop making payments on annuities, which are contracts that provide a monthly payment from insurance companies for the life of a policy owner.
The insurance industry has denied wrong-doing. From this recent Bloomberg article…
“These allegations are unfounded and contrary to life insurance companies’ long-standing business practices,” the American Council of Life Insurers, a trade group, said in a statement earlier this month.
As a result of its own investigation, starting in September the New York Insurance Department will begin a six-month trial that will require all 172 life insurers licensed to do business there to begin using the Social Security system to determine that a policy holder has died. You can read more about the New York probe in this Bloomberg article and the California investigation in this one.
Moral of the story? If you have a life insurance policy, make sure somebody knows about it. And check out our story on how to check for unclaimed property, then make it a habit to periodically do it.