Life Insurance Companies Reach Settlements For Failing to Pay Beneficiaries

Imagine buying a life insurance policy to protect your family if something should happen to you, and then imagine that your insurance company fails to notify your beneficiaries that they have money coming to them when you die.

That’s what has been happening across the United States when insurers haven’t always been doing all they can to locate life insurance beneficiaries, according to a story on BusinessWeek.com.

In fact, MetLife Inc., one of the nation’s largest insurers, will pay a $500 million settlement after insurance regulators in several states investigated “whether companies were holding funds that should go to beneficiaries,” the BusinessWeek story reported. The settlement resulted from a government investigation into how insurers sometimes were not using adequate means to locate beneficiaries. Other life insurance companies, including Prudential Financial and John Hancock, have also settled similar cases with state regulators, according to reports.

“Life insurers have faced increased scrutiny from regulators in Florida, California and other states over unpaid benefits,” the story said. “Life insurers are generally required to pay claims after being notified of a policyholder’s death and receiving a valid death certificate. If insurance companies aren’t notified, they usually are required to hold the funds until the insured would be about 100 years old, plus an additional three or five years, depending on the jurisdiction, before turning the money over to the state as unclaimed property.”

Typically, survivors contact a life insurance company to file for benefits, but survivors don’t always know that they have been named as beneficiaries. The insurers are responsible for contacting named beneficiaries on the policies, but those efforts are not always as thorough as the insurance regulators believed they should be, which is what launched the investigations into the matter more than a year ago.

The MetLife settlement was the third large insurer to now pledge to do more to get death benefit payments out to beneficiaries in a more timely and direct way, according to a story in The Wall Street Journal.

“This is a landmark settlement, and it is probably the largest settlement in terms of return of money to consumers,” Florida Insurance Commissioner Kevin McCarty said, according to the story. “Florida estimates the agreement could return more than $500 million to consumers.”

In a statement, MetLife said it “has been working with regulators to develop industry best practices and is pleased to announce new processes that will provide an even stronger safety net for the limited number of beneficiaries who do not submit a claim to the company in the normal course of business.”

Across the U.S., the actions by state insurance regulators have now resulted in about 32,715 payments totaling $262.2 million to beneficiaries who didn’t know their family member had named them for benefits on a life insurance policy, according to a story in The (Syracuse) Post-Standard newspaper.

In New York State alone, there were 7,525 awards that totaled $95.9 million in claims payouts, according to the paper.

“This investigation makes it perfectly clear that something must be done to make sure families across New York receive the life insurance benefits that they are due,” N.Y. Gov. Andrew Cuomo said in press statement about the settlement. “In the wake of this investigation, New York will now mandate that insurance companies actively search the list of recent deaths so money will be paid to beneficiaries instead of being trapped in limbo and a new website will help families search for lost or forgotten policies.”

As part of an effort to help residents learn that there are benefits waiting in their name, New York has “launched a free, online “Lost Policy Finder” website to help people locate lost or misplaced life insurance policies,” according to the paper.

This problem of tracking down and collecting on unclaimed life insurance policies has been going on for years, according to a story in The New York Times last year. “… hundreds of millions of dollars in life insurance goes unclaimed each year for one simple reason: the beneficiaries do not know the money exists,” the story reported. “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.”

Much of the problem can be pinned on the life insurance companies themselves, says Saul Langsam, MyPhillyLawyer’s in-house expert on estate and family law.

“They don’t hesitate to take your premium dollars, but then they put the burden on surviving family members to pursue the claim” if they can’t reach you, he says. “That insurance company mentality permeates the industry.”

The problem is that many times people don’t tell their loved ones ahead of time that they have been named as beneficiaries on life insurance policies, Langsam says. “One of the things I have found in my years of doing this is that there often are instances of secrecy between family members, especially parents and children, where they don’t mention such things. It’s intriguing how many times that people say that their parents were so secretive. What’s the point of that?”

Instead, Langsam says, it’s a good idea to talk with your children and other family members and let them know your intentions while you are alive. “Tell them, ‘hey guys, I’m up in years and I have prepared assets in your names'” he says. “Tell them where the paperwork and policies are kept in case they are needed.”

If you don’t do this, he says, then policies may not be known and your beneficiaries won’t know to seek the funds. “If you haven’t communicated with your adult children about what you have or don’t have or about what’s buried in a lockbox somewhere under the porch, they’re clueless.”

Insurance companies have had similar behaviors in the past in not pursuing proper payments to beneficiaries, Langsam says.

After World War II, many life insurance companies in Europe failed to seek out and pay benefits to the families of Holocaust survivors, Langsam says. The companies told families that they would not pay out benefits unless it could be proven that the deceased family members were in fact dead. But since they had been murdered in German prison camps during the war, such records were almost impossible to obtain.

“Only through the courts and suing the companies did the survivors eventually get any relief,” Langsam says. “The awards totaled hundreds of millions of dollars. It took litigation. That’s just the mindset of the insurance industry. It’s a sad commentary, but its reality.”

And one apparently that continues today, as the recent settlements bear out.