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- Missing Persons: When can the family expect a life insurance payout?
- July 10, 2011 3:03 PM
By Emily Capdevielle and Hollie Smith
There are many reasons why individuals take out a life insurance policy, and when the Grim Reaper is knocking on your door you know your loved ones will be taken care of… but what if you’re MIA?
According to the National Crime Information Center (NCIC), as of December 31, 2010, the NCIC contained 692,944 missing person entries. NCIC statistics indicate that 19,853 out of the total missing persons are classified as missing due to involuntary circumstances such as kidnapping or abductions and 381 recorded missing persons due to a catastrophe.
In the event the primary breadwinner of the family went missing or passed away, life insurance is essential to have especially if you have dependents. According to LIMRA’s 2010 Insurance Ownership Study, 30 percent of U.S. households, (35 million) do not have life insurance, and only 44 percent of U.S. households have individual life insurance policies, resulting in a 50-year low.
LIMRA’s study also indicated that nearly seven in 10 American households with children under 18 would be in jeopardy if the primary wage earner died. Obtaining life insurance would lift the financial burden off of dependents or family members who would have to take care of death taxes or any other final expenses. In the case of a missing person, in order to receive the death benefits, it would have to be proven that the policyholder died.
Deciding factors that a missing person to be presumed dead
1. The person has been missing from their home for a period of at least seven years
2. The absence has been continuous without an explanation about their whereabouts
3. The people most likely to be in touch with the missing person has not been contacted by them
4. The person cannot be found after a thorough search and investigation into their whereabouts
The procedures and length of time required to declare a person dead vary by jurisdiction, but in the case where no body is found, a “death in absentia” (also known as presumption of death) ruling is decided in court. Although some states have recently lowered the length of time a missing person has to be proven dead, according to Whit Cornman, spokesperson for the American Council of Life Insurers (ACLI), the timeline is about four to seven years. For the state of Illinois in particular, the person has to be missing for at least seven years and a reasonable search must be conducted before the beneficiaries will receive the payout.
To search for a missing or unidentified person nationwide, the non-profit advocacy group Let’s Bring Them Home has a missing or unidentified person’s finder.
According to Dr. Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute (I.I.I.), insurers will conduct background checks and consider the policy terms and conditions before making any decisions. In other countries such as Italy, this process could take 20 years or more.
The ACLI says that instead of providing a death certificate to the insurance company, a court order would be provided as proof that the missing person is presumed deceased. The claims process would then ensue once the insurance company receives the order and the insurance policy.
In the event of a natural disaster resulting in missing persons, different guidelines may be applied, says Loretta Worters, I.I.I. vice president of communications. The beneficiary of the life insurance policy would need to obtain “proof of death” forms from an insurance agent, complete them and submit to the insurance company with a death certificate. However, if the missing person were found to be alive, the beneficiary or family would be expected to repay any death benefits they received from the life insurance company.
The 9/11 terrorist attacks would be considered a “perilous circumstance,” Worters explains. In similar instances, the beneficiary could prove the person’s death by providing proof the policyholder was in danger. This could include a time punch, information about the person’s job, or proof from the airport that the person boarded a hijacked airplane.
When will I receive the death benefit?
“How the beneficiary is paid and how long the claim process takes varies depending on the terms and conditions of the life insurance policy and the insurance company,” says Cornman. “Insurance companies also have to carry out due diligence and conduct a background check on the policyholder in case of fraud.”
The I.I.I. indicates the claim may be delayed if the policy does not state specific names of beneficiaries. In which case, the benefits would go to the estate and could delay the distribution of money to the heirs.
The beneficiary of the life insurance policy may receive the death benefits in a number of ways including one lump sum, on a specific income provision where the company pays you both principal and interest on a predetermined schedule, in addition to other options in order to settle the claim. If the person just so happens to reappear, the beneficiary would be expected to pay the insurer back and pony up the dough, says the I.I.I.
People may try to collect on a life insurance policy when the policyholder is not actually dead. This is considered insurance fraud, which is illegal; once discovered, it can result in a prison sentence.
Because of the individuals who would like to initiate a “get rich quick” scam, the Coalition Against Insurance Fraud estimates insurance fraud in all its forms costs Americans approximately $80 billion per year. The Coalition also reported 35 arrests and convictions were made in regards to fraudulent life insurance claims in 2010. However, James Quiggle, director of communications for the Coalition, indicated that insurance fraud isn’t well documented since so much goes undetected. The Coalition attributes this to insurers who would rather not question smaller suspect claims to avoid going to court for bad faith. The term “bad faith” means that an insurance company failed to promptly and thoroughly investigate a claim in a reasonable amount of time.
“Life insurers have every legal, ethical and business incentive to honor their contracts to policyholders. In 2009, the industry paid $59 billion to life insurance beneficiaries with less than one percent of total claims in dispute,” says the ACLI’s Cornman.
Cornman added that most life insurers maintain or, in some states, are required to maintain special investigation units for the purpose of investigating fraud. When it comes to investigating fraud, insurers are interested in facts associated to the terms of the life insurance contract and provisions of state civil or criminal law that pertain to fraud.”
“When conducting their investigations, insurers are aware that any decision they make is subject to review by state examiners, and therefore they are very cautious,” says Cornman.
People have been faking their own deaths for decades, but the greediest do so to reap insurance benefits. Here are the top three cases (guilty parties are all alive and well, some still behind bars):
1. Ismael Rodriguez and wife, Maria, owners of two Mexican restaurants in Pensacola, Fla., traveled to Mexico when Maria claimed Ismael had been kidnapped and murdered. Maria returned to the United States with a fraudulent death certificate and received $2 million in life insurance payouts.
However, border patrol and customs showed records that Ismael crossed the United States-Mexico border when Maria claimed he was allegedly dead. He was found guilty of fraud and sentenced to five years in prison.
2. In 2002, UK resident John Darwin was pronounced dead after a presumed canoe accident. Police conducted a three-day air and sea search that turned up a smashed canoe, and a year later Darwin was pronounced dead. The family received £25,000 in life insurance (half of the insurance amount because the body was never found) and had their £130,000 mortgage paid off.
However in 2007, after Darwin’s wife sold her properties and transferred funds to offshore accounts, Darwin miraculously appeared at a London police station saying he had been missing for the last seven years and had no memory of it. Authorities discovered he even lived next door to the family’s home and visited by way of a secret passageway. Darwin’s two sons were never told their father was still alive.
The couple was taken into custody for fraud and each sentenced to six years of prison. Their story has inspired books, movies, and even a television series.
3. Dorothy Johnson and her daughter Twila McKee thought they had it all figured out. McKee claimed her mother died in the World Trade Center attacks on September 11, reaping benefits from two life insurance policies totaling $135,000. However, Johnson’s thumbprint was found on a letter to the insurance company, and she herself filed a car insurance claim that happened 12 days after she supposedly died.
The mother-daughter duo was arrested in 2003 and charged with insurance fraud and attempted theft.
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