Life insurance is often purchased to protect against loss of income, but policyholders commonly fail to inform the beneficiary(s) of the policy's existence. As a result, there are many unclaimed life insurance policy death benefits because of long dormancy periods or lack of awareness. The responsibility to claim benefits lies with the survivors.
In addition to the amount of the unclaimed policy benefits, beneficiaries may be entitled to more than the value of the policy as a growing number of mutual life
insurance companies have converted from being owned by its policyholders to being a publicly traded stock company owned by shareholders (aka demutualization). The financial benefits continue to accrue after a company demutualizes.
In addition to the benefits of the policy, the beneficiary may also be entitled to receive stock, benefit from the growth of an appreciated share price, policy credits, cash payments due from stock dividends, and other benefits in consideration and exchange for their ownership interest in the old mutual insurance company.
If the insured had term insurance, the policy's benefits are only due and paid if the deceased dies during the term the life insurance is in effect and before the end of the term while the policy is still in effect. If the deceased insured had whole life insurance, benefits are due to be paid if the death occurred while the policy was in force meaning that all premium payments were made up until the time of death. If the death had occurred previously some time ago, benefits are due to be paid with interest from the date that the deceased passes away.
When a whole life policy lapses, in most cases it depends upon the policy and options determined by the insurer. Two such options include converting the lapsed policy to an "extended term" equal to that of applying the cash value earned to date in the policy by buying a short-term life insurance policy which uses up the earned cash value to date or by reducing the amount of the policy death benefit.
If the policy lapses, with the extended term option, if the extended term period payments are used up before the insured dies, the policy becomes worthless and no benefits are due the beneficiary. If the insured dies before the extended-term payments are used up, the beneficiary will receive the value of the extended term death benefit. It is the responsibility of the beneficiary to provide a copy of the insured deceased's death certificate to the insurance company as part of the claim procedure to verify the deceased's death and prove the date of death. There is no time limit during which a beneficiary can claim a paid-up whole life benefit.
Unclaimed life insurance proceeds often wind up in state unclaimed property funds. State laws often require that insurers transfer unclaimed life insurance funds into the abandoned property account after a policy reaches the “limiting age. The same is true of demutualization payments. In recent reorganizations, many large life insurers reported that they had hundreds of thousands of “lost policyholders” (mostly small-face and industrial life insurance policies) who could no longer be located.
This article was contributed by Prerna Mordani.
