Beneficiaries of Unclaimed Life Insurance Policies

Aparna Iyer Sep 29, 2018
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Unclaimed life insurance death benefits are a consequence of the beneficiary, either primary or contingent, being unaware of the existence of the policy.
The purpose of life insurance is to provide monetary compensation, known as death benefits, to the beneficiary of the policy on the death of the insured person. The owner of the policy is usually the person who pays the premium and has the right to name the beneficiary. Life insurance policies can be of two types: term or permanent.
The former allows the beneficiary to claim death benefits, only if the insured person dies before the term expires, which is not the case with the permanent one. The one who is entitled to receive compensation on the death of the insured person is known as the primary beneficiary.
In case he dies before the insured person, the contingent beneficiary has the right to claim death benefits. A single candidate for it is called a specific beneficiary. In case a group of people is named for the same, they are known as class beneficiaries.
If the policy owner wants a minor to be the recipient, a guardian having the legal authority to receive death benefits should be specified in the will. Most life insurance policies give the policy owner the right to revoke the beneficiary named in the policy. In case of irrevocable ones, the beneficiaries' consent is needed to name a new one to the policy.

Policies

Generally, the policy owner is the insured person who names the beneficiary. In some instances, the policy owner may be the beneficiary who pays the premium and is entitled to death benefits in case the insured person dies. In this situation, there is no question of unclaimed death benefits since both of them are one and the same.
However, death benefits of many life insurance policies are left unclaimed since the beneficiary is not the policy owner and is unaware of the existence of the policy. For instance, a wife may be the beneficiary of the policy, while her husband, the policy owner, is the insured person.
In case the husband dies before the wife, she is entitled to death benefits. However, she may not claim the proceeds since she may be unaware about the existence of the policy. It is best if death benefits are claimed within a year of the death of the insured person.
The beneficiary will be entitled to the entire amount, provided that the policy owner paid the required premium. An insurance policy is said to have lapsed if the due premium payments are not received by the insurance company. This can happen because the policy owner died or stopped making premium payments.
In case the policy lapses because of the death of its owner, the insurance company is expected to make good its obligation to pay the beneficiary, regardless of when he turns up to claim death benefits. The beneficiary would be expected to submit the death certificate in order to claim the total amount.
In case the policy lapses and he does not claim the same, the following course of action may be adopted by the company:
  • It may try to find out why the policy lapsed and may send letters to its owner, informing him about the situation.
  • In case it is a permanent life insurance policy, the company may use its cash value (death benefits and accumulated value) and buy a term life policy, thus extending the policy.
  • The company may keep the policy active, but reduce its death benefits.
  • If the company is aware of the death of the insured person, but is unable to contact the beneficiary, it may transfer the amount of death benefits to the state where the insurance policy was purchased, and the beneficiary can then claim the same from the state.
The insured person pays the premium all his life, hoping that the beneficiaries will receive the necessary compensation on his death. In order to ensure that death benefits do not go unclaimed, the policy owner should inform them about its existence.
The beneficiaries, for their part, should go through the correspondence, canceled checks made out to the insurance company, and the tax returns of the deceased. There is a good chance that the life insurance policy is a group insurance policy provided by the employer.
Hence, the ex-employer may be aware of its existence. There are online resources that can help people track the death benefits that are rightfully theirs.
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