- What happens when life insurance benefits go unpaid
- May 1, 2012
One avenue for finding a missing policy could lie with the fact that so many life insurance companies demutualized, starting in the late 1990s. When a company demutualizes it issues stock to its owners and, in the case of a life insurance company, anyone with a policy should receive shares of stock as well.
Bridgeland says those shares have a financial value that can be claimed immediately, even if a policyholder is still alive. They’re also a way to track down a missing policy.
Unlike a life insurance policy, which can sit on a company’s books for years if no one files a claim, stock is treated like any other asset and turned over to a state unclaimed property office if its’ been dormant or unclaimed for a certain number of years.
“A lot of these large mutual insurance companies had a lot of small policies that were never claimed. You’re not just looking at it as a face benefit, you should also look at it as if there is a demutualization payment available,” Bridgeland says. “Even if you’re dead and they’re not aware that you’re dead, if they think you’re still alive you’ll still get that demutualization check.”
By searching through state unclaimed property records, Bridgeland says he located the life insurance policy of a friend whose parents took out a policy on their son but never told him about it. Not only did Bridgeland’s research uncover a $3,000 policy, his friend received $8,000 worth of insurance company stock.
The difficulty in tracking down old life insurance policies is evidenced by the fact that the insurance commissioners of just three states are known to offer services that help beneficiaries search for old policies. (see sidebar) If a potential beneficiary contacts one of these offices, the commissioner contacts several insurance companies and asks them to search their records for a policyholder’s name.
Bridgeland says their success rate is not very high, partly because a policyholder could pass away in a different state from where they bought the policy—which makes it difficult for the commissioner to know which companies to check with. He says many older and smaller policies are still kept on paper and have never been digitized, which makes them hard for the companies themselves to locate. The MIB Group, a membership corporation owned by approximately 470 U.S. and Canadian insurance companies, offers a policy locator service where for $75 it will search its records for life insurance applications that may help beneficiaries track down a policy. MIB’s website says this service has a response rate of nearly 30 percent.
Its database is limited to policies issued after 1996 and may not include smaller policies that were too small for a company to underwrite.
The legislative response
Since 1980, insurance companies have had access to the Social Security Administration’s Death Master File and have used it to keep track of those who passed away and should no longer receive annuity payments—yet they’ve not done this with life insurance policies. The SSA compiles the list through reports from a variety of sources including the states and various federal agencies.
“I think it’s a case of the law not keeping up with technology because when the insurance laws were drafted there was no such thing as a Social Security death index so there was no master way to determine if someone was alive or not,” Atkinson says. “The law has not caught up to recognize that there is a way to determine whether people are alive or not.”
That’s subject to change, in November 2011, the National Conference of Insurance Legislators drafted model legislation, to be enacted by individual states, that would require insurance companies to use the DMF to keep track of their life insurance policies the same way they do with annuities.
Kentucky State Rep. Robert Damron, a former NCOIL president who spearheaded the effort, says life insurance companies would have to compare their policies with the DMF on a quarterly basis.
If a match were found, the company would have 90 days to determine if it was valid and notify the beneficiaries. Information provided by the DMF might be less helpful than it used to be in the past, as the SSA announced in November 2011 that it would no longer make information it received from the states available to the public.
In 2010, the SSA shared approximately 2.8 million death records which it expects will drop by approximately 1 million as a result of the change. The agency’s historical DMF contains 89 million records, which will be decreased by approximately4.2 million records. The SSA gave no explanation for this change and did not respond to requests for more information.
Damron and others say the change was probably out of concerns of potential misuse or fraud, although they hope the SSA will change its mind and make an exemption for legitimate uses—such as insurance companies keeping track of policyholders. Even if this database is not available, Damron says the legislation would require companies to keep track of life insurance policies by using whatever methods they use to monitor their annuities. He introduced a version of the NCOIL legislation in Kentucky and expects it to become law.
“The insurance companies are going to have to come up with something to run their in-force annuities by and we all know that’s going to happen and so that’s why the language is flexible enough. If they have another form of data that they’re using to run these matches they have to use that for their in-force life insurance as well,” Damron says. “Some of the insurance companies have told me that they have developed their own databases that they use in the annuity process that are equal to or better than the Death Master File.”
The American Council of Life Insurers, an industry trade group, says its members are still reviewing the NCOIL proposal but otherwise had no response.Pages: 1 2
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