New York is cracking down on
life insurance companies
, requiring that they try harder to find and pay beneficiaries when
When someone dies after they buy life insurance, his or her
beneficiaries are responsible for claiming the benefits. But often
they don't even know they are entitled to life policy benefits, or
don't know which company holds the policy.
The Social Security Administration keeps an up-to-date database
of the deceased called
, which includes names, birth dates, Social Security numbers and
last known addresses.
According to the National Association of Insurance Commissioners
(NAIC), life insurers typically don't check the database to look
for clients who died because they are not eager to pay life
beneficiaries who fail to come forward. Here's
why your life insurance company doesn't care if
Earlier this year, Florida Insurance Commissioner Kevin McCarty
said 40 of the nation's largest life insurance companies may owe
beneficiaries in the U.S. more than $1 billion. Dozens of states
have begun investigations into whether life insurers have failed to
look for beneficiaries.
New York hopes to make new insurance rule
In July, the New York Insurance Department said it was concerned
about cases where deaths occurred but no claims were filed. To
solve the problem, it has asked insurers in the state "to use a
reliable death list to identify those cases and pay beneficiaries,"
says David Neustadt, spokesperson for the department.
Neustadt says the department's directive was a request but that
it's working on a regulation to make that request a "standard going
James H. Hunt, a life insurance actuary for the Consumer
Federation of America and a former insurance commissioner of
Vermont, thinks New York's request could help beneficiaries
everywhere. "If New York adopts a working regulation, other states
will follow and/or insurers will voluntarily use a list," he
Life insurance industry seeks clarity
Steven Brostoff, spokesperson for the American Council of Life
Insurers (ACLI), a trade group, says New York is but one of a
handful of state insurance departments seeking information
regarding life insurers' efforts to locate beneficiaries when an
insured dies but no claim is filed. However, he says, the requests
vary widely in terms of scope and content.
Brostoff says the ACLI would like state insurance regulators and
the NAIC to coordinate these requests. "An informed dialogue and
focused effort among the many stakeholders to make the laws and
regulatory standards more uniform from state to state is in
everyone's best interests," he says.
Every day, Brostoff says,
companies across the country pay an average of $1.6 billion in
benefits. While Brostoff says that life insurers in New York will
fully cooperate with the state insurance department's inquiry, the
industry is seeking further guidance. Life insurers in the state
have questions about what period the request covers and whether it
applies to policies that for various reasons did not yield a data
match in Death Master, he says.
Brostoff declined to comment on whether other states were likely
to follow New York's lead or whether beneficiaries nationwide stand
to benefit state's actions.
Insurance companies use Death Master for annuity customers
Insurance companies are quick to check the Death Master to look
for policyholders who have purchased annuities because, should they
die, the companies can promptly stop paying them, says McCarty.
Life insurers aren't anxious to find beneficiaries who don't
come forward because, when the policyholder stops paying premiums,
the company can deduct the premium due from the account value until
it is depleted, McCarty says.
Also, policies may sit dormant, leaving funds available to the
insurer to invest. If the company is aware the policyholder died
and that no claims were made, those benefits are supposed to be
turned over to the state, according to the New York Insurance
Hearings have been held on the issue in the state capitals of
Florida and California. Insurance commissioners in those states
also are looking for ways to require life insurance companies to
make stronger efforts to find beneficiaries.