In this age of data bases and search engines, it's hard to imagine that anyone could be the beneficiary of a life insurance policy and not receive the money. But it happens all the time.
Consumer Reports investigated the problem of lost insurance policies for its February issue. They found there's currently about $1 billion in life insurance benefits waiting to be claimed by beneficiaries.
"The average unclaimed life insurance benefit is $2,000, but some payouts have been as high as $300, 000," senior editor Jeff Blyskal told me.
The magazine calculated the odds that you are owed money from a lost, forgotten or unknown policy are about one in 600.
Why is this happening?
Sometimes it's a communication problem. All too often, people buy life insurance and don't let their beneficiaries know about it. But Consumer Reports points a finger at the insurance industry.
"Over the years, insurance companies have not made much of an effort to find these people," Blyskal said. "When one of their policy holders dies they don't always go looking for the beneficiaries."
In 2011, New York State began looking into how life insurance companies handled their claims. Last week, Governor Andrew Cuomo announced that this investigation has resulted in more than $665 million being paid to more than 89,000 people across the country.
"It's only fair for families and individuals who lost loved ones to receive life insurance benefits they are entitled to," Gov. Cuomo said in a statement.
New York's findings match what California regulators discovered in audits of insurance companies going back to 2008. They found "an industry-wide practice of failing to pay death benefits" even though the companies had access to federal death records. And in some cases, payments were withheld despite direct confirmation from relatives that the policyholder had died.
Worse yet, some companies continued to collect premiums after the policyholder died and the payments stopped by drawing down the policy's cash reserves. Once the reserves were gone, the policy was cancelled.
"For decades, too many insurers have fleeced their policyholders," said California State Controller John Chiang in a statement.
Insurance companies agree to change their ways
Six big insurance companies have now settled charges brought by a multi-state task force looking into this payout problem.
AIG, Forethought, John Hancock, MetLife, Nationwide and Prudential have agreed to use the Social Security Administration's Death Master File to find beneficiaries. When beneficiaries cannot be located, payouts will be turned over to state unclaimed property offices.
As part of a settlement with Florida, AIG recently turned over more than $25 million in unclaimed life insurance benefits.
"These new accounts represent dollars loved ones set aside to secure financial stability for their families," said Florida Chief Financial Officer Jeff Atwater in a statement. "Holding companies accountable means these dollars will now be returned to their rightful owners across the state."
The life insurance industry acknowledges the problem of unpaid benefits, but insists it's a relatively minor one.
"By all indications, this is a very small percentage of what life insurers pay out each year," said Jack Dolan, vice president of media relations at the American Council of Life Insurers. "Even so, we recognize that this represents benefits owed to real people who could use the money and we are dedicated to making every effort to locate beneficiaries."
How to find and collect an unpaid life insurance benefit
Do you think you might have been named as a beneficiary by someone who died more than a few years ago? Visit missingmoney.com where you can search records for 38 states, the District of Columbia, Puerto Rico and most of Canada all at once.
Or go to unclaimed.org, the website of the National Association of Unclaimed Property Administrators, to access individual unclaimed property offices. You should check all the states or Canadian provinces where the deceased lived and may have purchased a life insurance policy.
The American Council on Life Insurance also has detailed information on its website about finding a Missing Life Insurance Policy.
Of course, communication can help prevent these lost payouts from happening.
"If you take out a life insurance policy, let the beneficiary know," advised Steven Weisbart with the Insurance Information Institute. "You don't have to tell them how much money is involved, but you ought to tell them that they are the beneficiary of an insurance policy, who the insurance company is and how to find them."
The American Council of Life Insurers has a new My Insurance Log tool on its website, to make this easier.