Will Your Life Insurer Pay Promised Benefits?

EDITOR'S NOTE: This article was originally published in the July 2011 issue of Kiplinger's Retirement Report. To subscribe, click here.

For years, you've dutifully paid life-insurance premiums in hopes of providing security for your family after you're gone. But ensuring that loved ones enjoy those benefits in the future requires careful preparation today. That's particularly true now that sweeping investigations are raising questions about whether life-insurance beneficiaries are receiving all the money they're due.

Insurance regulators in a number of states are examining life insurers' possible failure to pay death benefits to beneficiaries, even in cases where the companies knew of the death of the policyholder. Regulators are also questioning whether companies failed to turn over unclaimed death benefits to the states as required under unclaimed property laws.

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Industry representatives say insurers are holding up their end of the bargain. "The fact is, life insurers pay on average $1.6 billion to policyholders, beneficiaries and retirees every day, a clear demonstration that life insurers are fulfilling their promises," says Whit Cornman, spokesman for the American Council of Life Insurers.

Policyholders. You can improve the odds that your insurers and loved ones can find each other when you're gone. One place to begin: Start talking. While many people are reluctant to tell family members that they have a life-insurance policy, "my advice to insured people is don't leave beneficiaries in the dark," says Steven Weisbart, senior vice-president at the Insurance Information Institute. "If you don't tell them anything, they're not going to get anything, and the whole point of buying insurance is down the tubes."

Be specific when naming beneficiaries, giving the Social Security number, relationship to you and address, Weisbart says. Update the information if beneficiaries change their names or if you change beneficiaries.

Keep the insurer informed of any changes in your mailing address and phone numbers, and ask for an annual policy statement. The statement can help you keep track of changes in the company's name, headquarters or contact information -- and help the company keep track of you.

People who no longer owe premiums -- perhaps because their policies were purchased with a single premium or limited number of payments -- can fall through the cracks. "A person can stop paying premiums and within several years after that, the company has no idea where the person is," says Joseph Belth, editor of The Insurance Forum newsletter.

Keep a copy of your policy at home and another with a relative, lawyer or accountant. Compile a list of all death benefits that might be available to your beneficiaries, including those linked to former employers, professional associations and credit-card accounts.

Beneficiaries. You may need to do some detective work to track down all the benefits you're owed. If you have the policy itself, check the application, which should be attached. The application should list all other policies owned at the time it was made.

If you believe you're the beneficiary of a policy but have little information, state insurance departments may help. You can get contact information for these departments through the National Association of Insurance Commissioners' "life insurance company location system". The insurance departments should have records of insurance-company mergers and name changes, and they can help identify insurers that might have written the policy. You can then contact those insurers.

For benefits that may have been turned over to the state as unclaimed property, check MissingMoney.com. Also, check with the National Association of Unclaimed Property Administrators (www.unclaimed.org).

If you've exhausted free sources of information, consider MIB Solutions' Policy Locator Service (www.policylocator.com). For $75, the service searches for life-insurance applications dating back to December 1996. It provides contact information for insurers that accepted applications from the individual. You can then contact those companies and ask about any policies written on the deceased.

Laise covers retirement issues ranging from income investing and pension plans to long-term care and estate planning. She joined Kiplinger in 2011 from the Wall Street Journal, where as a staff reporter she covered mutual funds, retirement plans and other personal finance topics. Laise was previously a senior writer at SmartMoney magazine. She started her journalism career at Bloomberg Personal Finance magazine and holds a BA in English from Columbia University.