The story every life insurance company tells is the family tragedy. Both husband and wife go out to work, leaving their two teens to cope on their own. Knowing life would be a struggle if one spouse died, they were both insured. So, when the worst happens and one is unlucky to be caught in a traffic accident, the rest of the family is able to pay off the mortgage and other major debts, with enough left over to see the children through college. This general story is reassuring. It addresses the natural worries of parents and gives them a good night’s sleep every night. Except life does not always run as the marketers would have us believe.

Let’s change the story so that disaster strikes the whole family. They are all in the car together as it is forced off the road in a collision with a driver under the influence of alcohol and crashes into a tree. They all die in the resulting fire. So there’s no convenient family member who opens the drawer of the desk in the living room and takes out the policy to make the claim. Indeed, the insurance company may be completely unaware of the deaths. The only sign will be that the premiums are unpaid. The company may write a warning letter or two to the family’s address. There’s no reply so the policies are cancelled.

The question, therefore, is what should happen to any money that’s unclaimed. Obviously, we should distinguish the cases where the insurer knows or does not know of the deaths. Sadly, there’s no consistency in the laws dealing with this. All the states have slightly different laws. There’s some current discussion with a new model law proposed to clarify the confusing legal requirements but, so far, there’s no agreement on what the final version of the model law should look like and there will be no obligation on states to implement it.

There should be a standard system in all states for deaths to be notified to life insurance companies or every insurance company should be under a legal duty to monitor the register of deaths. That way, insurers would know if policyholders have died. If no claim is received within a set period of time, the insurer should begin a search for beneficiaries. If a will is submitted for probate, it would not be difficult to identify the legitimate claimants and to notify them that money is being held for them to claim. But if there’s no will, the insurer should be required to spend a reasonable about of time and effort in tracking down the next of kin. Many insurers quietly absorb the unclaimed money. In some states, however, the government claims the money. Again, there are no consistent auditing rules about how the amount is calculated. All we can say is that, every year, several hundred million dollars of all life insurance moneys goes unclaimed and so often ends up held by the states. Details of the unclaimed money are then advertised, but only about 20% of that money is ever claimed. This benefits the state treasuries and taxpayers when no one claims. So when you get life insurance quotes, tell all your relatives and beneficiaries which insurer will be paying out. That gives them the chance to claim.

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