Life insurance can play a useful role in many people’s estate plans. It can provide replacement dollars for pension and Social Security income for a surviving spouse, or provide a guaranteed inheritance amount to beneficiaries, such as a spouse or children. It can be an asset that grows tax-deferred if cashed in during your lifetime, or tax-exempt if it passes upon your death. It can be an asset that provides protection from creditors, both pre- and post-mortem. Lastly, if you have a taxable estate, it can, if properly titled, be a way to pay estate taxes without adding to the size of your taxable estate.
But let’s say that when you pass away, no one can find your insurance paperwork. Or no one even knows the policy exists. If you think the insurance company is going to go out of its way to figure out if you’re still around, and to find your beneficiaries, think again. For insurance companies, ignorance is bliss – and profitable. Companies have been sitting on piles of money in unpaid benefits – estimated by some to be nearly a billion dollars – without any pressure to locate the rightful recipients. Investigations show that some companies, even when aware of an insured’s death, do not pay out unless the beneficiary contacts them.
Condemning this practice last January at a Florida Senate Banking and Insurance Committee meeting, the state’s Chief Financial Office Jeff Atwater said: “For years insurance companies had no trouble sending their agents to their house for the weekly payment. They knew exactly where they lived for 20 years. But now that it may be time to pay up, it’s a horrified hardship to find that individual.”
Well, the era of blissful ignorance ends July 1. That is when Florida will require life insurance companies doing business in the state to actively seek out beneficiaries of insureds who have died. Companies must routinely consult the U.S. Social Security Master Death Index, retroactive to 1992, and pay the appropriate beneficiaries. If the company cannot locate the beneficiary, unpaid benefits must be turned over to the State of Florida’s unclaimed property fund, so that the search for beneficiaries can continue.
Score one for the consumer!