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Splitting heirs: Are lost-policy finder services worth the money?

For many people, the scenario is familiar: You know your deceased relative had a life insurance policy, but you don't know who the insurer was, when the policy was issued, or how much it was worth.

The policy is out there — somewhere

Before you shell out some bucks to hire a service to look for a lost life insurance policy owned by your deceased relative, try these steps:
  • Go through canceled checks or contact your deceased relative's bank for copies of old checks. If your relative wrote checks to pay premiums, the insurer's name should be written on checks. Also, some banks sell life insurance policies to customers who own checking or savings accounts.
  • Contact the treasury department in the state in which the policy was purchased. Death benefits can turn up there as unclaimed property, usually after three to five years, but only when the life insurer knows the insured is deceased.
  • Check old credit card statements. Your relative may have paid premiums by credit card.
  • Contact any past employers to see if your relative had group life insurance.

The prospect of looking for an old life insurance policy can be daunting and frustrating. As a result, many people are inclined to hire someone to do the searching. Search firms — or "heir finders" as they are often called — specialize in finding unclaimed life insurance death benefits. Most often, these search firms send letters to insurance companies on a customer's behalf, asking the insurer to turn over any policies in which a customer is the beneficiary.

Where do lost policies go?

When a policyholder dies, it is typical for a beneficiary to contact the life insurance company to collect the policy proceeds. Make sure to ask the insurance company whether that person had any other policies with the company. Even though you might not be the beneficiary, the request ensures the company knows it must search for the beneficiaries of any additional policies.

If a beneficiary does not make contact and the insurance company is not notified of the insured's death, the policy might lapse and the death benefit is never paid out.

In cases where the insurer knows about the insured's death but cannot locate the beneficiary, it must hand over the death benefit to the office of the state comptroller. Insurers generally have to transfer the money to the state within three to five years of the insured's death, though the time period varies by state. (For more on this, read How to collect on missing life insurance policies.)

Once the policy proceeds are turned over to the state, they are deemed "unclaimed property" and you can collect the proceeds if you can prove you are the beneficiary. States maintain databases listing the names and addresses of beneficiaries who are heirs of lost policyholders. In some states, the names and addresses of the beneficiaries are published annually in local newspapers. Other states have Web sites where you can enter the insured's name and look up any death benefit that's owed to you.

You can also get help at places that assist with unclaimed property. In addition to lost life insurance policies, these firms can help locate lost funds in bank accounts, unclaimed tax returns and lost stocks.

The National Association of Unclaimed Property Administrators warns some individuals pose as heir finders in order to take advantage of people.  The organization suggests contacting the unclaimed-property office and consumer protection division in your state to check for any complaints or allegations of fraud against any heir finder you consider hiring.

Life insurance companies say they make strong efforts to search for beneficiaries they cannot find, but point out those searches sometimes fail.

How can I help you?

Hiring help to look for a lost life insurance policy can cost you a flat fee, or a service might charge you 10 percent to 20 percent of the life insurance proceeds — if anything is found.

Administrators at state unclaimed-property departments — where some lost life insurance policies end up — say there is nothing these search firms can do that the average person can't — if you have the time.

Paul Archibald, a retired insurance professional in Virginia, runs a Lost Life Insurance Finder Expert service. Archibald will fax letters to 460 customer service centers at insurance companies, asking if your deceased relative had any life insurance policies which designated you as the beneficiary. If the insurer finds a policy, Archibald then asks the company to contact you directly to start the claim process.

Archibald acknowledges that people could send letters to life insurers themselves, but notes that compiling the list of insurers is time consuming and the postage would be costly. "If you had the list of companies in front of you, it would take you 10 to 15 hours to print out the letters and put them in envelopes. If you mailed them yourself, the postage cost would be greater than my fee," Archibald says. "I can do it for you, and do it faster than you ever could."

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