Unclaimed Life Insurance Benefits
Nothing can really compare with the grief caused by the death of a loved one. For some survivors, the loss triggers an set of practical financial problems. They worry about how bills will get paid. Will they lose their home or have to move to a smaller, less expensive place? What about the children and how will they pay for their needs and even college? These practical concerns can be helped with life insurance benefits. Oftentimes, however, is whether the survivors know there was a life insurance policy? If they are not of the policy or policies, will they receive their benefits?
Beneficiaries Unaware and Fail to Make a Claim
A series of articles in the Chicago Tribune has called attention to a real problem in the insurance industry. When beneficiaries of a life insurance policy are unaware they are insurance beneficiaries, they of course fail to request the death benefit. How can they request something they are unaware even exists? If no beneficiary makes a claim, the insurers often just quietly keep the money for themselves.
The Illinois Treasurer’s Office, over the objection of many insurers, instigated an investigation into unpaid life insurance benefits. According to the Chicago Tribute report, The Kemper Corporation, with three subsidiaries selling insurance policies in Illinois, refused to allow the audit and instead filed suit against the State of Illinois alleging the State Treasurer exceeded his authority by even requesting the audit.
Insurers Must Make an Effort to Find Beneficiaries
As a result of the investigation and the audits that were conducted, the Governor signed a law, that was effective January 1, 2017, that will require insurers to take steps to locate beneficiaries. Kemper is concerned this law will interfere with the company’s claim process handling and will have a “material adverse effect on the company’s profitability.” The State Treasurer was not terribly concerned about Kemper whose 2014 and 2015 combined revenue equaled more than a billion dollars.
Findings of the Investigation
The Illinois Treasurer’s Office audited approximately 40 life insurance companies to see how many policies had never paid benefits after the death of the insured. The audit went back as far as 2011 and found more than $550 million in unpaid death benefits! Some insurers bank the money and then earn millions of dollars of interest “which they then include into their profit margins.”
Even in cases where the insurer confirmed a person was deceased so “no longer eligible to receive that investment income” from an annuity, the company did not take the next natural step and pay the death benefit. When there was no beneficiary request, the company just kept the money for itself. There was no law or mechanism in place that required the insurers to locate beneficiaries. The burden was on the beneficiary to claim the benefit. Legislation has now been passed, and the bill signed into law, that will remedy this situation.
The Unclaimed Life Insurance Benefits Act
The Illinois Governor recently signed the Unclaimed Life Insurance Benefits Act which will go into effect on January 1, 2017. This Act requires “insurers to, among other things, run semiannual checks against the Social Security Administration’s ‘death master file,’ which contains the records of deaths reported to the federal agency to determine if a policyholder has passed away and to notify beneficiaries how to make a claim.”
The assistance this new Act will provide is yet to be seen, but is expected to benefit millions of people. For example, during the investigation, one woman was recently called by the Treasurer’s Office and told that the mother of two children she had been caring for were beneficiaries of their mother's life insurance policy. Their mother had died in a 2007 car wreck which the children had survived. The children are now young adults with learning disabilities. Their surrogate mother testified at a hearing dedicated to urging the passage of the Act, that this beneficiary money for the two boys will go a long way in providing for their future.
The new law takes the burden for initiating a payment off the shoulders of an unknowing beneficiary and places it on the shoulders of the premium collecting insurance company. As Illinois Treasurer Mike Frerichs said, “When people purchase a life insurance policy, they assume their loved ones will be paid out soon after their death.” Fair enough.
If you have recently lost a loved one, contact one of our attorneys at the Blumenshine Law Group. We will get from you all relevant information and, with the help of the state Insurance Department’s Life Policy Locater Service, determine if a loved one named you as a beneficiary to a life insurance policy or annuity contract. Call us today at (312)766-1000.