Social and Political Commentary

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Will the $69 million payout include you?

... Wall Street Journal story relates how big life insurers are committed to finding and paying
unpaid beneficiaries.

by Joe Sullivan

The Tuesday April 24 edition of the Wall Street Journal had an eye-opening story for anyone who
either holds or is a beneficiary of a life insurance policy. Met Life, the countryís biggest
insurance company agreed to pay $40 million to settle an investigation of how it handles death
benefits. These benefits are the payments that are supposed to go to the people designated as
beneficiaries of life insurance policies.

The issue is that a significant number of beneficiaries did not, and are not, receiving payment
when the policy holder dies. The reason for the lack of payment is that the insurance company does
not pay unless the policyholderís beneficiary makes a claim.

Because of the probe, which was conducted by an investigating team made up of attorneys general,
comptrollers, regulators, and treasurers from six different states, MetLife, Prudential Financial,
and John Hancock will make multi-million dollar payments to settle the issue. As a condition of the
settlement, the insurance companies pledged to work more aggressively to get money to
beneficiaries. In addition to the $40 million that the settlement will cost Met Life, Prudential
Financial will pay $17 million and John Hancock, $12 million.

Big insurers used Social Security death database arbitrarily.

An issue of the settlement according to the Journal story, is how the insurance companies used the
Social Security death database. The investigation looked at whether the insurance companies
violated laws by using the database to their own benefit, but not for their customers.

Involved was the difference in handling annuities and life insurance. An annuity is a policy in
which its holder makes individual payments, usually monthly, to the insurance company to build a
fund which the company will later pay back to the policy holder starting at some designated future
date.These are usually monthly payments that continue until the policy holder dies.

The payments continue for as long as the policy holder is alive even if the payments exceed the
value of the accumulated fund. If the policy holder dies before the accumulated fund is exhausted,
the insurance company keeps the remainder.

It is to the insurance companyís benefit to know, as quickly as possible, when an annuity holder
dies so the company can stop sending checks. The insurance companies were using the Social Security
death database to find deceased annuity holders.

Insurers didn't pay off on insurance policy unless beneficiaries filed claim first.

When it came to life insurance policy holders the insurance companies did not use the Social
Security death data base as a way to find a policy holder who had died. When a policy holder dies
the insurance company is obliged to make payment to the people who were designated as beneficiaries
by the policy holder. But the insurance companies paid only when the beneficiary filed a claim.

If no claim was filed the money that would have been paid to the beneficiaries stays with the
insurance company. This, obviously benefitís the insurance company. Policy holders have paid
premiums, in many instances for years but this money stays with the company if no one files a
claim.

The insurance companies were using the Social Security death database to determine how they could
stop sending checks to deceased annuity holders but did not use the database to determine deceased
insurance policy holder whose beneficiaries they were obliged to send checks to.

A perspective of how long this disparity has continued can be learned by looking at when the
database first became available. It was in the 1980ís. MetLife testified in hearings last year that
it started to use the database in its annuity business in 1980. It began using it to cross check
its life insurance client base in 2007.   

Authorities were concerned, according to the Journal, because the people who are losing out are of
modest means who donít have lawyers or advisers to handle their financial affairs.

When insurance regulators started the investigation around a year ago they estimated that more than
$1 billion owed in death benefits were sitting on life insurersí books and some of it had been
there for decades.

Some unclaimed benefits go back to early 1900's.

MetLife is also committed to efforts in finding hundreds of thousands of older people to whom small
policies were sold. Most of these are less than $1,000 in face value and go back as far as the
early 1900ís. Together they are valued at more than $400 million according to the insurer and state
officials. Florida Insurance Commissioner Kevin McCarty called the MetLife settlement a landmark
and probably the largest in terms of a return of money to consumers.

Settlement not binding on all insurance companies.

It should be noted that settlement is not binding on all other insurance companies. California
Insurance Commissioner Dave Jones was quoted in the Journal that he hoped other life insurers will
follow MetLifeís lead and enter into similar agreements.

Although it didn't say so in the Journal story, understanding that the big insurance companies
settlement is limited to a few big companies calls for Melrose Mirror readers to initiate some
insurance investigations of their own.

If you own a life insurance policy or policies it would be well to remind the people you have
designated as beneficiaries know this. They should also know that when you depart the earth that
they will have to file a claim to get what you have provided for them. Payments will not come to
them automatically.

Make sure your beneficiaries know the name of the insurance company who issued you your policy.
They should known too, the information which identifies the policy is yours, such as a policy
number. It would help if they know what the policy looks like and where you keep it.

It helps to identify secondary beneficiaries, too. These are people who are designated to get the
money if the primary beneficiary dies.

If there is any way to do it, determining whether your parents owned a life insurance policy in
which you are almost certain to be one of the beneficiaries could be fruitful. You could be one of
the beneficiaries languishing in the insurance company's files.

The insurer's commitment to find beneficiaries is beginning to work. The Journal story told of a
New York lady who benefited from an insurance companyís use of the death database to identify
overdue policies. Her father who died at 91 had taken out a policy decades earlier. She didnít know
he had the policy so didnít file a claim when her dad died. New York Life, issuer of the policy,
contacted her to tell her that $7,500 was on the way. She split it with two family members.

Itís nice to know that the settlements are producing results. On the other hand some investigating
work by you may mean that your beneficiaries will know right away that theyíre rich when the time
comes. Heaven forbid, of course.

May 4, 2012      


           

  


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