Author: Sean Drummey

Under a new Florida law life insurance companies must check death benefit records retroactive to January 1, 1992 to help identify deceased policy owners and initiate paying claims according to the Orlando Sentinel.

Start at Florida’s Unclaimed Property Search to see if you are a life insurance policy beneficiary.

How does a life insurance company know that the policy holder has died?  Traditionally it has been the beneficiary’s obligation to notify the carrier and file a claim. Carriers require a death claim form and a copy of the death certificate be submitted.  But what if the beneficiaries are unaware of the policy?  Unfortunately that has been a real problem. Thousands of life insurance policy holders did not have adequate estate planning.  Their beneficiaries did not know the policy existed or were no longer alive.  Millions of dollars of life insurance benefits have never been paid.

Life insurance carriers have not been proactive making good on life policies when not notified of a claim.  They have had no economic incentive to pay those claims. However the states where the policy owner resided have an incentive to take over the unclaimed money after a period of time to allow the death benefit to earn interest for them.  Multiple states life Florida and California have reached settlements with the companies. It was obvious many insurance companies had set a double standard.  Since it was in their economic interest to stop paying checks for annuity policy holders, they set up a system cross referred the social security death master file, but never bothered to set up the same system for their life policies holders.

These settlements of state lawsuits has helped reform the system immensely, but a rear guard has done their best to challenge reform and do as little as legally required.

Consumer protection may depend on what state you live in.  Legislation has been passed or proposed in states that is more conducive to life insurance carriers’ interest.  Note how this shielding process is now being proposed in North Carolina.

In recent years, roughly 20 life insurance companies, in national agreements with states, have promised to identify dead policyholders and pay out their policies or turn the money over to the states as unclaimed property. But other companies are petitioning state lawmakers across the country to pass a law that would shield them from having to do the same thing.

North Carolina state Treasurer Janet Cowell leads a fight to protect beneficiaries.  Quote via NC Policy Watch article.

SB 665 is an attempt by one insurance company, to greatly limit the Department’s ability to audit by excluding whole categories of policies from the audit requirement. Specifically the legislation would exclude policies called “industrial life policies” which comprise the great majority of benefits that have gone unpaid by these companies. This exclusion will result in tens of thousands of loved ones never receiving the death benefits their parent, grandparent, or spouse has already paid for. 

This legislation is little more than a money grab. Other companies in the industry have had no problem complying with statutory audit requirements.

Kemper Corp. has lead an effort to block or restrict reform.

If you’re wondering if you are a beneficiary to a life policy, there are some basic steps to take for free and others for more extensive follow through.  MIB is a good source for this.

Notes:  May 2015

Retroactive Statutes:
Iowa, Idaho, Maryland, Nevade, New York, North Dakota, Rhode Island and Vermont.

Prospective statues or interpreted to be prospective only:
Alabama, Arkansas, Georgia, Indiana Kentucky, Mississippi, Montana, New Mexico, Tennessee and Utah,

Transamerica withdrew their TransACE life insurance products on February 4th citing a difficult interest rate environment.  Carriers at times discontinue or change products, but Transamerica’s decision was unusual in that they stopped processing current applications.  Usually carriers give prior notice and accept applications up to the cut off date and give a processing deadline for submitted applications, but here Transamerica even pulled the plug on current applications except where the 1035 cash exchanges had already been sent to the existing carrier, or those out for delivery.

The low interest rate environment is an ongoing concern for life insurance carrier.  Here’s an overview from the NAIC, National Association of Insurance Carriers on its impact.

How to know this was coming?  Transamerica has strong independent financial ratings. They have a 92 Comdex ranking which is a composite percentile rank of all carriers. However, Fitch had given Transamerica a negative outlook in February, 2014, but revised it to stable in October.

Take Away

Transamerica’s abrupt decision to withdraw TransACE probably did applicants a favor, given the encountered difficulties.  Applicants can simply apply somewhere else using the same paramed results and medical records.  Current TransACE policy holders may wish to reevaluate.  One may surmise the plan’s projections were not favorable.  Considering replacement calls for careful review; the burden of proof for replacing should be fairly high. Requesting an inforce illustration from the carrier is the first step.

Choosing a carrier is a key component in selecting a permanent life insurance policy.  I favor mutual life companies or those privately held over publicly traded stock companies. Stock companies have to subject the pressures of shareholders; publicly held or mutual companies do not.

The product affects the importance of carrier choice.  Whole life is the traditional province of mutual companies. With guaranteed Universal Life (GUL), the lowest premium with a lifetime no lapse guarantee is the key driver.  The company offering a Guaranteed UL are on the hook for the guarantee. How the carrier performs over the time is not of strict importance, assuming the historical resiliency of the life carriers.  With a current assumption UL or an Indexed Universal Life (IUL) consumers are advised to closely review the relative merits of the carrier’s financial strength, since the policy’s performance will depend on interest crediting and cost of insurance charges.  Carrier ratings matter but also trends indicating stability and financial strength.  Veteran life insurance agents since the Great Recession of 2008 have witnessed many.