Yet hundreds of millions of dollars in life insurance goes unclaimed each year for one simple reason: the beneficiaries do not know the money exists. Even in this wired age, if the insurance company cannot locate the beneficiary — or for that matter, even learn that the policyholder has died — that money will go unclaimed.
The money does not stay with the insurer indefinitely. It is eventually transferred to state unclaimed property divisions. And the states then post the information on Web sites or in local newspapers.
But that process can take years, and in the meantime, first the insurers and then the states profit from money owed to the beneficiaries.
New York has received $400,287,736 in unclaimed life insurance property since 2000 and paid out $64,772,228, said Vanessa Lockel, a spokeswoman for the Office of the State Comptroller. And that is just one part of the $10.5 billion the state has received in unclaimed property since 1943. Only about 20 percent of the property is claimed in any year.
Florida has about 9.9 million unclaimed accounts — including securities and other property, in addition to insurance — worth more than $1 billion. Of that, some $355 million is related to unclaimed insurance, said Alexis Lambert, a spokeswoman for the Florida Department of Financial Services.
The reality, though, is that most of those insurance policies will never be claimed and the money will end up being used by the states. New York has had an account from one person worth $1.7 million since 2004.
So how bad is the problem of unclaimed life insurance policies, and what can you do if you think you’re the beneficiary of one?
THE PROBLEM It is difficult to accurately estimate the extent of unclaimed life insurance policies.
Joseph M. Belth, professor emeritus of insurance at Indiana University and editor of the Insurance Forum, tried to calculate the amount that insurance companies send to states from unclaimed policies. He asked the 20 largest insurance providers how much they remitted in 2009, and he asked the 20 largest states how much they had received. He received few answers and even fewer complete ones.
“I got the feeling that all of this is unaudited,” Mr. Belth said. “The states can’t afford to do the audits. Whether the companies have good recordkeeping I honestly don’t know, but I strongly doubt it.”
He extrapolated from the data collected that about $351 million in unclaimed life insurance was transferred to states in 2009, and insurance companies had total unclaimed policy liabilities of $1.3 billion. Yet he said he believed those estimates were low.
Individual insurance companies contacted for this column generally did not want to discuss the subject. But the life insurance trade industry association said insurers did their best to track down beneficiaries.
“Life insurers make every effort to locate beneficiaries of life insurance policies,” said Whit Cornman, a spokesman for the American Council of Life Insurers, a trade group. “Many companies have units dedicated to dealing with unclaimed proceeds.”
Depending on the state, insurance companies have two to seven years from the date a policy is deemed inactive to transfer the money.
As for the states that receive the unclaimed money, they say it is always available to be claimed but will be used for other purposes until then.
“We put an ad in the paper for people to check our Web site,” said Anthony Forchino, assistant director at the Arizona Department of Revenue. “It goes into a general fund each year until it’s claimed. We hope that we have enough left out each year to pay the claims.”
But the reality is that both insurers and states benefit for years from the unclaimed money.
LOST AND FOUND Insurance is regulated by the states, meaning there is no central place to turn to in locating policies. “The short answer is there does not appear to be a definitive source for identifying how many life insurance policies lay unclaimed by their beneficiaries in the United States,” said Michael Barry, a spokesman for the Insurance Information Institute.