New York life insurance companies directed to find and pay beneficiaries

New York is cracking down on life insurance companies, requiring that they try harder to find and pay beneficiaries when policyholders die.

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.

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The Social Security Administration keeps an up-to-date database of the deceased called Death Master, which includes names, birth dates, Social Security numbers and last known addresses.

New York life insurance requestAccording 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 you’re dead.

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 forward."

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 says.

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, life insurance 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 Department.

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.

More from Beth Orenstein here

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