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Making life insurers pay up

By Jay MacDonald ·
Friday, July 8, 2011
Posted: 9 am ET

If you've ever purchased life insurance, you've probably had that fleeting thought cross your mind: What if they don't pay up? After all, it's not like you'll be in any position to do much about it.

Well, it seems that life insurers sometimes don't pay up. And now a lynch mob of state attorneys general wants to know why.

The mob formed three years ago around Verus Financial, a Connecticut auditing firm that offered to help states ferret out instances where some of the nation's largest insurers welshed on deceased policyholders. The states could then seize the unclaimed life payouts as abandoned property, thereby potentially returning millions to their cash-strapped coffers.

Some 35 states signed on, agreeing to give Verus Financial a piece of the action, according to the Wall Street Journal. But the movement has grown and tempers have flared as inspectors peered beneath the veneer of good old life insurance to see the creaky, and perhaps deceitful, practices that lurk beneath.

The National Association of Insurance Commissioners launched its own task force to help sleuth out what it estimates to be more than $1 billion in unpaid death benefits on thousands of small policies, many written in the 1940s and '50s.

The latest flare-up came last week when New York Attorney General Eric Schneiderman subpoenaed a veritable Who's Who of American life insurance companies to explore whether insurers do enough to determine when a policyholder has died and benefits are due.

Bloomberg, quoting an anonymous source, listed the subpoenaed companies as AXA Equitable, Genworth, Guardian, John Hancock, MassMutual, MetLife, New York Life, Prudential and TIAA-CREF.

At issue is whether the insurers: a) use the proper databases to determine if a policyholder has died and/or b) conveniently cherry-pick the data to avoid paying benefits to the surviving families.

Regulators say they should be using the Social Security Administration's Death Master File, just as they do to cancel annuity contracts. The life insurance companies insist they have done nothing illegal, and that they are under no contractual obligation to determine if their policyholders are still alive.

There have been a few settlements. A few insurers have agreed to use the Death Master List. But there's still a stench about the whole story that just doesn't play well in Peoria.

If you have elderly friends or family members, you know how easily things like brokerage accounts, bank accounts and insurance policies can be misplaced or forgotten.

Life insurance companies may not have a fiduciary duty -- yet -- to uphold their end of these contracts.

But I would submit that they have a moral one.

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July 17, 2011 at 2:36 pm

I paid for accident and life insurance's from 1978 until I got hurt in 2005! I filed on it and they refused to pay for any of it which showed me that insurance company's do not pay! I canceled them both and was told I would not even gete a refund of any type! I am totally disable from the fall and cannot afford insurance, plus the people I worked for did not carry insurance on workers, nor did the have worksman comp,! Now why pay for something you will never get just save a bit for it!

Walt Richey
July 08, 2011 at 11:41 am

The words "moral" and "life insurance companies" should not be used in the same sentence.

July 08, 2011 at 10:09 am

Just wanted to let you know that Texas has the same law. It just happened to a friend of mine who was in the same boat, and had not paid the association fees and then also got hit with fines for a tree in their yard. Then they have to pay the court costs for the HOA. The way it is all set up you think it was a sting operation. The HOA had court rights to foreclouse on their home for $7,000.00. My friend has a husband out of work and three children. What kind of people running a HOA could do something like that... What happened to compassion and understanding?