Why Life Insurance Benefits Have Sometimes Gone Unpaid In Illinois

Aug. 25--Lynn Lucchese-Soto thought she was being scammed when she got a phone call at work earlier this year, supposedly from the Illinois State Treasurer's office, saying that two children she was raising were the beneficiaries of a life insurance policy.

Skeptical, the Chicago lawyer hung up, found the agency's number, dialed it, and learned it was true: The children's mother, who was killed in a 2007 car crash, had a life insurance policy for more than $100,000.

The coverage came to light through a life-insurance audit by Illinois Treasurer Michael Frerichs, who held a hearing Wednesday on how unpaid life insurance benefits can help families -- if they know that the policies exist. The proposed Unclaimed Life Insurance Benefits Act, whose provisions include forcing companies to be more diligent about determining whether a policyholder has died, is awaiting action by Gov. Bruce Rauner.

"We're having these hearings because we've discovered a problem with the insurance industry in this state," namely that policies haven't been paid out after the death of policyholders, Frerichs said before the hearing in the Bilandic Building in downtown Chicago. "We've passed legislation this year through the House and the Senate and hopefully the governor will sign this to make sure insurance companies have to check their policyholders twice a year to see if they've passed away and, if they have, to notify their beneficiaries in a timely manner."

Since 2011, auditors working on behalf of the Illinois treasurer's office have identified more than $550 million in death benefits that were owed to grieving Illinois families but hadn't been paid, Frerichs said.

The bill would require insurance companies to use the Social Security Administration's "death master file," which contains the records of deaths reported to the federal agency, to determine if a policyholder has died and to notify beneficiaries on how to make a claim.

"I've never met a man or a woman who purchased life insurance with the expectation that the death benefits would be kept by the insurance company rather than paid to the family," Frerichs said.

Rauner spokeswoman Catherine Kelly said Wednesday afternoon that the bill is under review.

In a statement at the hearing, which about 20 people attended, Frerichs said some life insurance companies choose to remain silent when it comes time to pay a life insurance claim.

"We know of examples where a life insurance company stops paying on an investment annuity after using federal data to confirm a person has died and is no longer eligible to receive that investment income," he said. But "that same company will not take the reasonable next step and begin the process of paying a life insurance benefit," instead keeping the death benefit money.

Lucchese-Soto was among four members of the public who testified in Chicago on Wednesday at one of a series of events that Frerichs is holding statewide. In 2007, Chicagoan Terra Thomas, the chief executive of a nonprofit agency, was killed in a car crash with one of her triplets. Lucchese-Soto took in the two surviving triplets, who are now in their mid-20s and who have learning disabilities.

The recently uncovered proceeds from their deceased mother's life insurance policy will help care for the boys in the future, Lucchese-Soto testified.

"Any parent who has any child -- we worry about their futures," she said. "But if your child is a special-needs child, you have double the worries." The two women had known each other through their children.

Also testifying was Mark Henton, pastor of Monument Of Faith Evangelistic Church in Chicago.

He didn't know that church members had named him and his church beneficiaries of $38,000 in life insurance benefits until a staffer checked the treasurer's list of unclaimed property. He has used the insurance money to hire minority contractors to do church maintenance, including putting new gutters on the building, fixing a sinkhole, and paving the parking lot.

"If it has done this much for us, what could it do for a single mother?" Henton testified. "For an insurance company to hold money -- 'I didn't give it to you because you didn't ask' -- shows me no integrity."

In late 2015, three life insurance companies owned by Chicago-based Kemper Corp. sued Frerichs, claiming his office improperly demanded records to identify families that are owed life insurance money after a death of a family member. United Insurance Company of America, Reserve National Insurance Co. and Reliable Life Insurance Co. claimed Frerichs overstepped his authority. Frerichs had been auditing about 40 life insurance companies to determine whether people in Illinois are entitled to money from life insurance policies that have been forgotten after the insured person has died.

"We pay insurance benefits -- we are in the business of paying benefits," Kemper said in a statement to the Tribune on Wednesday. "Treasurer Frerichs accuses Kemper of being one of the companies that knowingly chose not to pay life insurance benefits after learning an insured had died."

That accusation is untrue, "and the treasurer knows it," Kemper said.

The company said it believes that it's in compliance with Illinois unclaimed property laws.

"Like other financial institutions, we have been audited on that topic before and are willing to be again," Kemper said. "The real issue in the suit is not the audit itself -- but the scope of the audit -- and the treasurer's attempt to abusively exceed the legal authority of his office."

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