Billions of dollars in unclaimed life insurance benefits are at the center of a legal wrestling match. Cash-strapped state governments are stepping up their efforts to make sure insurance companies properly account for the funds. Although the money belongs to the beneficiaries, states have laws stipulating that the government becomes the owner of abandoned property after a period of time. Several states, budget-challenged California among them, are aggressively enforcing their unclaimed property laws to force insurers to hand over the money.
“It’s a budgetary issue for additional revenue,” says David Nolte, a principal at Fulcrum Financial Inquiry, a Los Angeles forensic accounting and investigations firm. Technically states hold unclaimed property for the benefit of the owner, but in many cases the owner doesn’t come forward.
| Steps to avoid losing track of potential payouts |
| Policyholders should have a discussion with their beneficiaries, and let them know which company wrote the policy and the name of an insurance agent, if one is used. All of the information, policy numbers, insurance company contact information, and a copy of the policy itself should be kept in a safe place where surviving family members will know to look for it and have access. Consider a safe deposit box or a secure fireproof lock box kept at home. |
| The policyholder should consider asking the insurance company for an annual policy statement if one isn’t provided. |
| It’s also important to remain in contact with insurers annually to update new phone numbers or other personal information, particularly in the case of an address change. |
| For survivors who believe they may be beneficiaries, check these websites to find the appropriate resources in your state: missingmoney.com and unclaimed.org. — AP |
That means the state has use of the money interest-free. It’s an easy source of revenue and an important one considering California faces a $15.4 billion budget deficit for the coming fiscal year.
Insurance proceeds are just part of the nearly $33 billion worth of abandoned property sitting in unclaimed accounts held by state officials, says the National Association of Unclaimed Property Administrators.
It’s not uncommon for as much as a third of a state’s unclaimed property to never find its rightful owner, says Brendan Bridgeland, director of the Center for Insurance Research, a nonprofit consumer advocacy group in Cambridge, Mass.
Benefits sometimes go unclaimed because insurers lose track of the policyholder or the beneficiaries of life insurance and annuities.
Insurers are required to pay life insurance benefits once they’re notified the policyholder has died. However, if the company isn’t notified by a relative or an estate, the unclaimed benefits may sit on the insurer’s books, sometimes for years. In other cases an insurance company may know a policyholder has died but is unable to reach the listed beneficiary.
California’s unclaimed property law requires businesses to send lost or abandoned financial accounts to the state after three years. That’s the opportunity California Controller John Chiang realized in going after insurers.
An audit of 21 insurance companies initiated by Chiang’s office found that insurers don’t routinely cross-check the owners of inactive accounts with a Social Security database of deaths. In other cases, companies had direct knowledge of the death of a policy owner but still didn’t notify beneficiaries, Chiang says.
He described it as “an industrywide practice of companies failing to pay death benefits to the beneficiaries of life insurance policies.”
Last month, Chiang announced he had reached a multimillion-dollar settlement with insurer John Hancock.
Part of the terms included the company agreeing to reunite more than $20 million of death benefits and matured annuities to owners or beneficiaries. The company, under the agreement will restore to full value about 6,400 accounts dating back to 1992, Chiang said.
Hancock, a subsidiary of Toronto-based Manulife Financial Corp., said it did nothing wrong and Chiang’s characterization of its behavior was unfair and inaccurate. “Hancock is outraged by the unfounded allegations and characterizations,” the company said.
Investors in insurance company stocks should closely monitor the developments because other insurers may be pulled into the fray, insurance industry analyst Randy Binner of FBR Capital Markets said in a recent report.
