Insurer’s Responsibility to Find Beneficiaries When You Die?
Among all of the paperwork families have to go through after a loved one dies, a life insurance policy is one that hopefully won’t get lost in the shuffle.
In the rare occasions when life insurance policy beneficiaries don’t know about a policy, it’s up to the insurance company to find the beneficiaries after a policyholder has died. The company has a contractual obligation to pay on the policy, though it can turn into a complicated situation if the insurer hasn’t been notified of the death or a claim hasn’t been filed because beneficiaries don’t know about the policy, says Alan Baker, owner of Spitfire Innovations, a consulting firm in Toronto, Canada, that specializes in life insurance.
Changes in checking Master Death File
“The good news is that insurance regulators are cracking down on insurance companies and requiring them to periodically inspect their policy databases and compare them against external sources in order to find insureds that have died, then find the beneficiaries and pay out the claim,” Baker says.
One of the main ways insurers do this is by checking the Social Security Master Death File. Some insurers, however, only use it to benefit themselves by identifying deceased who are due annuities and cutting off their annuity payments, according to the California Department of Insurance.
California and other states announced an agreement in November with Sun Life Insurance Co. and 13 other insurers to change how they use the Death Master File database. Sun Life will compare company records against the master file to search for unclaimed death benefits and beneficiaries.
How benefits are typically paid
Life insurance benefits are typically paid when a claim is filed by the beneficiaries, says Christopher Huntley, a life insurance agent at Huntley Wealth Insurance in San Diego. Even when a beneficiary isn’t aware of a policy, 99% of the time it will be found when settling the estate, Huntley says. If the policy isn’t discovered during the estate settlement, then a claim isn’t made.
Without a claim, the insurance company may not be aware of the insured’s death. But it’s still the company’s responsibility to pay, and the money due the beneficiary will fall under the state’s unclaimed property laws, Huntley says.
Most states require insurers to notify the beneficiary within three years from the date of the insured’s death, he says. “Once notified, it is still up to the beneficiary to file a death claim to collect,” he says.
Another way insurers discover that a policyholder has died is a missed policy payment, Baker says.
“The company should send out a missed payment notice, which should eventually end up in the hands of the executor of the insured’s estate, which should lead to the initiation of a claim,” he says. “But this doesn’t always happen.”
Sometimes the address is out of date — which can happen often with pre-authorized checking accounts — and sometimes it’s a paid-up policy that no longer requires premium payments, Baker says. The policy can then end up as unclaimed property.
Websites help find policies
Websites such as MissingMoney.com help beneficiaries track down policies that have been turned over to an unclaimed property office.
The best defense, Baker says, is for the insured to make sure someone is aware of the policy details, with the name of the insurer and policy number being the bare details that the beneficiary should have in hand.
The website Planned Departure offers a service where it alerts beneficiaries of life insurance policies and anything else the user wants them to learn about after they die, says Anand Ramdeo, a founder of the site. This can include digital assets such as access to the deceased’s social media, air miles and PayPal accounts, for example.
Huntley, the insurance agent, says he reminds clients to store their policy in a safe place and to tell the beneficiary where to find it if the need arises.
Aaron Crowe is a freelance journalist who specializes in writing about personal finance and insurance.
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