How Lost Insurance Policies Are Handled When The Insured Dies
Getting older makes it easy to forget things like where your insurance policy is. So if an insured dies, what can a beneficiary - if he knows he's a beneficiary of a lost policy - do, and what happens to the insurance policy in the mean time? This article answers these questions.
To collect as a beneficiary, you'll need to notify the insurance company and deliver the policy owner's death certificate to them. So when the insured dies, relatives, aware that they're beneficiaries, may have to search a bit to find the policy. If you, as a beneficiary, don't know who the insurance company is, what approaches can you use?
* Speak with anyone aware of the deceased's affairs and finances; and that includes his lawyer, banker, accountant and insurance agent. Of course, if he had all these, you'd probably have policy. * Contact his past employers in case he had some group life insurance or supplemental life insurance through work.
* Check all his cancelled checks that he made out to an insurance company. You can contact his bank for copies of his old checks.
* Check any of his past mail -you're looking for insurance premium bills and policy-status notices. They're sent out by insurance companies annually, and when payments are due.
* Examine his tax returns. - you're looking for interest income (schedule B) from policies or expenses paid to life insurance companies.
* Contact the Medical Information Bureau (MIB) in case the deceased had recently tried to buy life insurance. It maintains a database about requests on medical information within the past seven years. Do a search on the MIB Policy Locator Service.
What happens to the policy in the mean time?
If the insured dies and the insurance company isn't notified the company will take steps to find out why a policyholder stopped making payments. To do so, it'll send out letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If this fails, the company will then lapse the policy.
It's the type of policy that determines what how lapsing will occur. In the case of a Term Life policy, you, as the beneficiary, will be able to collect if you can prove that the owner died before the end of the term and he had paid all his premiums. If he died after that term expired then there's nothing to collect.
In the case of a Permanent Life policy, you'll receive the money (with interest since date of death) if the death occurred while all premium payments were made up until the time of death.
But, if the insured stopped making premium payments before he died and therefore 'lapsed' the policy, then there's a chance you might get nothing if too much time passes until notified. That's because when a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to either of these two options:
* extended term where the company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase. Then there's no benefit beyond this term.
* reduced paid up where the company will keep the policy in force permanently, but will reduce the death benefit.
An insurance policy owner should not only maintain a good record of his policy and where it's located, but he should give its beneficiaries information, too, including the name and address of the insurance company that wrote the policy. Tracking down an 'unknown' insurance policy can be difficult if not impossible.
Insurance company can't find or be found by the beneficiary of its policy If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state (where the policy was bought) comptroller's department within three to five years of the insured's death.
The money is considered "unclaimed property" and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller's department maintains a database that lists the names and addresses of lost beneficiaries. And that's another place for beneficiaries to look.
To collect as a beneficiary, you'll need to notify the insurance company and deliver the policy owner's death certificate to them. So when the insured dies, relatives, aware that they're beneficiaries, may have to search a bit to find the policy. If you, as a beneficiary, don't know who the insurance company is, what approaches can you use?
* Speak with anyone aware of the deceased's affairs and finances; and that includes his lawyer, banker, accountant and insurance agent. Of course, if he had all these, you'd probably have policy. * Contact his past employers in case he had some group life insurance or supplemental life insurance through work.
* Check all his cancelled checks that he made out to an insurance company. You can contact his bank for copies of his old checks.
* Check any of his past mail -you're looking for insurance premium bills and policy-status notices. They're sent out by insurance companies annually, and when payments are due.
* Examine his tax returns. - you're looking for interest income (schedule B) from policies or expenses paid to life insurance companies.
* Contact the Medical Information Bureau (MIB) in case the deceased had recently tried to buy life insurance. It maintains a database about requests on medical information within the past seven years. Do a search on the MIB Policy Locator Service.
What happens to the policy in the mean time?
If the insured dies and the insurance company isn't notified the company will take steps to find out why a policyholder stopped making payments. To do so, it'll send out letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If this fails, the company will then lapse the policy.
It's the type of policy that determines what how lapsing will occur. In the case of a Term Life policy, you, as the beneficiary, will be able to collect if you can prove that the owner died before the end of the term and he had paid all his premiums. If he died after that term expired then there's nothing to collect.
In the case of a Permanent Life policy, you'll receive the money (with interest since date of death) if the death occurred while all premium payments were made up until the time of death.
But, if the insured stopped making premium payments before he died and therefore 'lapsed' the policy, then there's a chance you might get nothing if too much time passes until notified. That's because when a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to either of these two options:
* extended term where the company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase. Then there's no benefit beyond this term.
* reduced paid up where the company will keep the policy in force permanently, but will reduce the death benefit.
An insurance policy owner should not only maintain a good record of his policy and where it's located, but he should give its beneficiaries information, too, including the name and address of the insurance company that wrote the policy. Tracking down an 'unknown' insurance policy can be difficult if not impossible.
Insurance company can't find or be found by the beneficiary of its policy If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state (where the policy was bought) comptroller's department within three to five years of the insured's death.
The money is considered "unclaimed property" and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller's department maintains a database that lists the names and addresses of lost beneficiaries. And that's another place for beneficiaries to look.
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