By Michael Babikian
The life insurance industry has been in the news recently over reports that some of the largest U.S. life insurers are failing to notify beneficiaries when a life insurance policyholder has died. The result, of course, is the headline-grabbing news that life insurance companies are “deliberately” benefiting from unclaimed policies. “60 Minutes,” the CBS news magazine, recently featured a segment on recent legal settlements with more than 25 of the nation's largest insurance companies agreeing to pay more than $7.5 billion in back death benefits.
In seeing stories like these, I’m disturbed to see this attempt to stigmatize the industry oversimplifies a complex problem. All of these stories focus on whether life insurance companies are aware of a policyholder’s death and what they should be doing to notify beneficiaries who haven’t stepped up to make their claims. The focus turns entirely to the insurance carriers’ behavior after the policyholder’s death.
Taking this to its seemingly logical conclusion, many argue that the only answer to this situation is for companies to be more active in seeking out whether any insureds have died. For example, many suggest that the Death Master File (DMF), compiled by the Social Security Administration, should be used to identify policyholders who have died and then trigger an active search for a beneficiary.
As a complete solution, this is troubling. The DMF is never entirely accurate or complete. So we are still left with the reality that, even if the insured’s death has been identified, beneficiaries sometimes just cannot be found. Shifting the duty to a life insurance company to be proactive in finding insureds who have died, to investigate the validity of that death, and then find beneficiaries is fraught with many false positives and false negatives. This results in a false sense of security for the consumer. It also could result in unintended costs of continued unclaimed property and additional administrative expenses that will likely be passed down to the consumer.
Finding beneficiaries is neither easy nor assured. Many of the associated duties have been transferred to individual states, which are already overwhelmed with tracking other unclaimed assets. This approach isn’t working. States have an overwhelming amount of assets that have not been reunited with their rightful owners. Nobody wins in this situation.
For better or worse, the current duty to verify an insured’s death rests primarily with the beneficiary. There are some exceptions to this in certain states. Because life insurance companies are regulated by the individual states, the companies are required to follow those exceptions.
But irrespective of where the responsibilities lie, it still begs the question of how effectively this solves the problem at hand. This straw man argument of blaming the companies seems more to be a struggle between companies and states to determine who holds unclaimed property. Some states have started relying on this revenue to support their budgets. In fact, according to Delaware Online, “Two U.S. Supreme Court justices say Delaware and other states may be doing too little to inform residents that they have unclaimed assets before absorbing the money into government budgets.”
I would argue that these types of “just search harder” solutions actually miss the entire point. This approach tends to vilify the companies and distracts us from addressing the core problem. The issue needs to be turned on its head. What we should address today is why this problem is happening in the first place.
In an age when data is so readily available, why are millions of beneficiaries still unaware of policies that their loved ones bought on their behalf? I believe that the correct approach is to make sure that there is some automated trigger that alerts the beneficiaries of life insurance policies, as well as other untouched assets, when a loved one dies.
I also need to emphasize that this concern about unclaimed assets is not unique to the insurance industry. In fact, it is a small part of the overwhelming issue of lost tangible and intangible assets. It is not only unclaimed insurance policies. It is unused gift cards and forgotten PayPal accounts. It is credits on accounts that are handled entirely online and can no longer be accessed because the deceased did not leave behind passcode records, or even a record of the account itself. It is bank accounts for which we no longer receive statements in the mail. The massive scope of the problem is clear when you realize that the amount of unclaimed property is now estimated to be more than $59 billion. This isn’t a single-industry issue. The insurance payout issue is only one part of a vast problem that has been created as we move our lives — especially our financial lives — online.
At the core, the complete solution is not to force either life insurance companies or states to search — or “search harder” — for lost beneficiaries. The solution is offering a tool where all of the records of these assets, both tangible and intangible, can be stored by the owner and which will trigger an alert automatically to the designated person when the policyholder becomes incapacitated or dies. Instead of pointing fingers, insurance and other financial services companies are searching for solutions to help rebuild the trust that has been fractured by these types of stories.
Many life insurance companies are deeply committed to resolving this issue and are looking for ways to keep beneficiaries in the loop so that the claim issue never develops at all. What is disconcerting about the news is that it portrays many of the insurance companies as not addressing this issue when the truth is that several of those companies have been working to offer a better way to address this problem.
From policies they are unaware of to lost online accounts, executors and heirs face painful hurdles. Blocked access to all of a deceased or incapacitated person’s assets should not be part of that pain. A complete legacy and estate planning platform that provides the ability to safely and securely create, store, and share all of that important information presents a much better solution. Companies are looking at systems that provide the ability to create, store and share this information today and in the future. And this directly contradicts the entire tone of the media regarding this issue.
Michael Babikian is CEO of LegacyShield. He may be contacted at email@example.com.
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