Unclaimed Life Insurance Property: Promises to Keep

What You Need to Know

U.S. life insurers paid $100 billion to policy beneficiaries in 2021.
Some beneficiaries had no idea that they were beneficiaries.
Some did not know that the insured had died.

Keeping the promise.

It’s a euphemism often used to describe the payment of a life insurance claim.

Because, at the heart of the matter, it’s the most important thing that life insurers do.

Case in point, U.S. life insurers paid a record $100 billion to life insurance beneficiaries in 2021.

But paying claims is also a task that is not without its share of challenges, both regulatory and operational.

The Rules

In the United States, most states have adopted some form of Unfair Claims Settlement Practices laws, which prescribe standards for prompt claim investigation and payments to beneficiaries, among other provisions.

State unclaimed property laws and a number of regulatory settlement agreements also provide an additional layer of requirements, including mandates for deceased searching, as well as timelines and reporting processes for the escheatment of unclaimed policy proceeds to the state.

All of these regulations come with hefty fines for non-compliance. To ensure compliance, insurers are also subject to undergoing numerous audits at their own expense.

The Life Insurer’s Duty

At a fundamental level, the task of paying a claim begins with the knowledge that an insured has died.

In most cases, beneficiaries notify the insurer of the insured’s death and file a claim for the policy proceeds and the process begins.

However, many situations differ from the norm.

Any number of plausible reasons exist for the failure of beneficiaries to file a life insurance claim.

Some insureds do not notify their beneficiaries of the life insurance coverage, so family members may not know a policy exists.

Or, the insured may have told the beneficiary about the coverage when the policy was taken out, but, over time, the beneficiary forgot about it.

In some cases, a beneficiary may become estranged from the insured and not know of the insured’s death.

However, none of these scenarios relieves the life insurer from the obligation to monitor its books of business to determine which insureds have died, and then to proceed to search for and notify beneficiaries, in order to pay claims.

The Death Master File

For the longest time, the Social Security Death Master File was the undisputed benchmark source for data about the deceased, and many life insurers bought this data to perform searches.

Then, in November 2011, a series of events began to change that:

The act provided for a fee-based certification process and prescribed permissible purposes under which the “limited access Death Master File” could be accessed. It also established penalties of up to $250,000 per person per year for improper disclosure or misuse of the information.

The act also required entities that access the Death Master File to submit a written attestation from an accredited conformity assessment body, or ACAB, certifying that proper information security protocols and policies are in place and being followed.

As the administrative hurdles and costs to access the Death Master File grew, the number of deaths in the database continued to shrink.