The Probe Into Life Insurance Company Beneficiary Payouts
When a person purchases a life insurance policy, they should feel confident that their families will be well taken care of financially after they’ve passed on. Policyholders can rest assured this is the case as long as insurance payments are made on time. However, many of these life insurance beneficiaries are unable to rest in peace after their loved one dies.
This is because a number of life insurance companies have not doing their part to properly identify and pay beneficiaries after a policyholder had passed on, as exposed by several insurance commissioners earlier this year. This prompted commissioners to dig deeper into understanding how companies were handling life insurance payouts. They were not happy with what they found.
Life Insurance Companies Said to Not Pay Beneficiaries
In late April, John Hancock Life Insurance Co. had reached an agreement with 22 states to settle a dispute over how it was paying life insurance policies and annuities to beneficiaries.
According to the agreement, the company would have to work to identify beneficiaries of its policyholders that had not been properly paid out over the years. This lack of identification and payment has since proven to be a problem with multiple insurance companies that choose to hold the money rather than pay it out as required.
In May, Dave Jones, California’s insurance commissioner, announced he would be stepping up his effort to investigate top life insurance companies like John Hancock to determine whether they were also abusing their rights to beneficiary money.
After his initial investigation, Jones revealed companies were purposely withholding life insurance payments and keeping the money to earn interest for as long as possible in what are known as retained asset accounts.
While insurance companies are required to either make beneficiary payments or send the unclaimed money to their state’s unclaimed property fund (where it is safeguarded from being spent or lost), the companies in question–John Hancock, Sun Life Financial, The Hartford, New York Life, MetLife, Prudential, Nationwide, Lincoln National, Pacific Life and Aegon Group–had done neither.
In fact, Jones found that one company, MetLife, had failed to pay money to beneficiaries for two decades while also failing to submit money to California’s abandoned property fund.
New York Attorney General Takes Action
Jones wasn’t the only official to take action on what he believed to be dishonest behavior from insurance companies. Florida Insurance Commissioner Kevin McCarty revealed in May that life insurers may owe beneficiaries in the ballpark of $1 billion in unclaimed assets throughout the 50 states.
He confirmed that,instead of having life insurance checks sent out, the money was sitting in insurers’ retained asset accounts. He and Jones both speculated more insurers would eventually be found guilty of the same.
This was proven true when New York Attorney General Eric Schneiderman sent out subpoenas in July to nine leading life insurance companies. Former Attorney General Andrew Cuomo had already initiated investigations in 2010 to look at companies’ use of retained asset accounts but then left his post to become New York’s governor.
By July, Schneiderman had identified a number of new companies that were guilty of the act. The new companies were TIAA-CREF, Genworth, Massachusetts Mutual, Manulife and Guardian Life Insurance, along with MetLife, Prudential and New York Life, which were previously implicated.
With the announcement of this investigation, companies began to protest, denying any wrongdoing. A spokesperson or TIAA-CREF told Reuters in July, â€œWe believe our processes are compliant with all relevant regulations and serve the best interests of our participants.â€ However, the company agreed to cooperate with authorities.
Shortly after the investigation was announced, the New York Insurance Department stated that it would go even further in holding companies responsible.
172 Companies Required to Report Death Benefits Payments
In July, the NY Insurance Department announced it would begin requiring all life insurance companies and fraternal benefit societies doing business in the state to report on how many death benefits they had paid.
This meant 172 companies would have to determine what payments are due, locate beneficiaries, make necessary payments and report these payments beginning in Sept. 2011 and continuing for six months.
Companies have long used the U.S. Social Security Administration’s Death Master File–an up-to-date list of recent deaths–to promptly stop issuing annuity payments to contract holders who have died. However, when it came to locating family of deceased policyholders in order to issue payments to a life insurance beneficiary, companies failed to use the file.
To resolve the issue, the insurance department is requiring companies use the file or whatever means necessary to find beneficiaries.
According to what is known as the 308 letter sent out to all companies registered in New York, they will be required to “cross-check all life insurance policies, annuity contracts and retained asset accounts on their administration data files, including group policies for which a life insurer maintains detail insured records, with the latest updated version of the SSA Master File.”
Companies will also be required to report on the effectiveness of their procedures. Their reports must be complete and will be subject to audit by the Department. For now, the Department is hoping to address the issue with its short-term fix. But it is also working on legislation to make this level of regulation permanent.
There is no word as of yet on how other states plan to handle this issue in the long-term, but the hope is the, in the meantime, companies will work to correct the issue on their own.