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In many ,the owner of a Life Insurance Policy will inform a loved one, close friend or designated trustee of the existence of their policy and who it is held with. This make things very convenient and less stressful for the surviving beneficiaries of the policy to receive the funds that the policy holder intended them to receive.
Life Insurance Policies are not part of an estate so unless someone knows about one they can go unclaimed for quite sometime or in fact never get claimed.
According to a study conducted by Consumer Reports, 1 out of every 600 people is the beneficiary of an unclaimed life insurance policy. $2,000 seems to be the average amount according to the report but can also go into the tens of thousands.
Although it remains the responsibility of the Beneficiaries to locate and contact life insurance companies about a policy, these companies still have a fiduciary duty to do all they can to locate beneficiaries of policies after the holder passes away.
Many States are recognizing the fact that many life insurance companies are not diligently pursuing beneficiaries so they are passing legislation compelling insurers to cross reference the Federal master death files with holders of policies.
Some states are going further and setting up websites to help people search for unclaimed insurance policies.
One such state is New York and in 2011, they began looking into how life insurance companies handled their claims. Last week, Governor Andrew Cuomo announced that this investigation has resulted in more than $665 million being paid to more than 89,000 people across the country.
In California the regulators started to audit of insurance companies as far back as 2008 and they found "an industry-wide practice of failing to pay death benefits". This is even after they actually searched the federal master death file. They also found in some cases, payments were withheld despite having the beneficiaries give them direct evidence of the existence of a policy. What is more outrageous, is the fact that according to this audit, some insurance companies were still collecting insurance premiums after the policyholder died although payments were no longer being sent stopped but instead the companies would draw down the policy's cash reserves. As a result, the policies would then get cancelled after there was no money left in the cash surrender value. Once cancelled the the insurers did not have to pay out and collected substantial windfalls for such a practice.
"For decades, too many insurers have fleeced their policyholders," said California State Controller John Chiang in a statement.
New York, conducted the same type of audit and came to the similar conclusions.
The life insurance industry now acknowledges the existence of such problems of unpaid benefits, but minimizes this by saying that it's a relatively minor issue.
Once place to get information for unpaid life insurance benefit is going to The American Council on Life Insurance website.
New York State Department of Financial Services (DFS) also offers a service to assist families in locating unclaimed benefits on life insurance policies/certificates and annuity contracts/certificates insuring the life of, or owned by, a deceased immediate family member.