Each year, insurance companies encounter unclaimed death benefits from life insurance policies.
Family members remain unaware that their loved one had purchased a policy years ago. Sifting through personal papers yields little information about the financial assets that were accumulated through a lifetime of hard work and prudent savings. Few Americans are aware that they have better odds of being a missing beneficiary than winning the lottery.
Odds of Receiving a Windfall
- Odds of winning the lottery jackpot are 1 in 175 million.
- Odds of being a beneficiary of an unclaimed life death benefit are 1 in 600.
These statistics should cause everyone to learn the reasons that life insurance death benefits remain unclaimed each year. This situation can be remedied when the involved parties take the initiative.
- Policyholders – Anyone who owns a life insurance policy should organize the personal papers into a single file. At times, the policyholder would rather not talk to family members about the existence of life insurance or the final wishes. In these cases, notes should be written to direct the survivors to contact the life insurance agent. Contact information should be included in the file.
- Agents and advisors – These trusted counselors strive to know each client. Guidance can be provided to the survivors when the agent is aware of the client’s passing. Assistance is offered to provide claim support to the beneficiary. Updated contact information for the beneficiary is assured when annual reviews are conducted.
- Beneficiaries – Trusted family members will have strong relationships with older family members. Awareness of the investment instruments in the portfolio should be held in confidence if the elder shares the information. Beneficiaries are helped when the executor realizes the importance of the role. Valuable information can be gleaned before the policyholder passes away if the executor can be trusted.
When Payments Cease
More than 99 percent of all life insurance death benefits are paid through the normal claims process. The insurance industry has become increasingly concerned with the few policies that do not have accurate beneficiary contact information. Tight industry regulations require the insurer to monitor the status of all life insurance policies.
• Policy lapses – In most cases, the policyholder overlooked the monthly or annual life insurance premium payment. The insurance company establishes contact and the payment is made. Occasionally, direct contact cannot be established. These cases are transferred to the dedicated investigative staff.
• Insurer investigates – Over the years, insurance companies have been accused of retaining ownership of the death benefits. Insurance regulators challenge insurers to make every effort to find missing beneficiaries. In the 21st century, the Internet provides unmatched access to the contact information of most people. With sufficient effort, the insurer can find the beneficiary.
• Check is sent – Once the missing beneficiary has been located, the insurance company performs a number of validation checks. Misdirected life insurance proceeds should never happen. In almost every case, the life insurance company is able to match the individual with the policyholder.
Every life insurance company experiences failed beneficiary searches. Some companies work harder at finding the individuals than others do. In recent years, the states have applied increasing pressure to report unclaimed death benefits. For missing beneficiaries, there are a number of steps taken to find the person who should be paid.
• Beneficiary designation – Inaccurate beneficiary contact information is the primary cause of missing beneficiaries. Invalid social security numbers that do not match the beneficiary’s name cause more issues than any other factor. The Social Security Administration manages the death master file, or DMF, which can be searched through SSA.gov. Insurance companies use this database to find out if policyholders have died.
• Policy locator service – The life insurance industry took the initiative to create a database of policies with missing beneficiaries. For a nominal fee, a search can be performed to find the policy. Most families should pay to have one of these searches performed just in case a policy exists.
• State agency – Every state has a set deadline for the life insurance companies to turn over the death benefit funds to the state. Unclaimed property lists are maintained in every state. Family members are wise to search these databases if more than two years have passed since the death.
Assume the Best
A death in the family presents challenges that could be handled more easily if the life insurance policy is found. Survivors should remember that 1 in 600 Americans would be a missing beneficiary. Odds like that should cause everyone to conduct a methodical search for life insurance policies. Monitoring the unclaimed property databases in multiple states is a good practice for everyone to embrace. Insurance companies are required to report the unclaimed death benefits to alert the state. Initiative is an important part of matching the beneficiary with the life insurance proceeds.