Millions of families (yes, millions!) have lost billions of dollars

Life Insurance. It’s a no brainer right? You pay a small premium every month, and after you’re gone, the family gets a nice windfall to help with costs, be it the mortgage, college tuition, or a nest egg to pass on to the youngsters.

Well, that’s what happens in theory, but theory doesn’t always translate to practice, as shown by an exposé of the American life insurance industry by 60 minutes this year. The program found that billions of dollars in payouts don’t get delivered to grieving relatives after the policyholder dies, simply because they don’t know it exists.



How it works

When your loved one dies, you might think the life insurer will contact you and offer a swift payout, along with their condolences. Not so. There’s no legal obligation for them to make you aware of the policy you’re entitled to, nor to deposit it in your account if you don’t come calling.

Instead, they can hold the policy in stasis, making millions and billions in profit by investing the capital as they see fit. The system is rigged in favor of the company, because the onus is entirely on you do to the legwork of retrieving your money. But what if you didn’t know the policy existed? Tough luck; they can keep the cash.

The real kicker is yet to come; some of the larger insurers actively comb their retirement policy holder database, and immediately stop monthly payouts to the deceased. Because they have access to a master file of deaths across the nation, they can play both sides of the coin.

In fact, as Kevin McCarthy (Florida’s Insurance Commissioner) tells us in the 60 minutes piece, there are cases of the deceased holding both an annuity and a life policy, where the insurance company terminates the annuity, but keeps the life policy without notifying the surviving relatives.

What do they have to say for themselves? 25 of the nation’s largest life insurers have already agreed to pay more than $7.5 billion in “back-death benefits”, but only after being chased by concerned state and federal officials. They have no legal obligation to do so, and that’s the argument put forward by those companies who refuse to break ranks, unwilling to cede the more than $3 billion in unclaimed benefits without a fight. They argue that attempting to retroactively police the insurance companies is a slippery slope, and that they can’t afford to budget in these unexpected costs. Tell that to the folks struggling with car payments and rent after a death in the family.

The take away for everyone is that you must make sure your family knows you have a life insurance policy and they must be told exactly who holds that policy. It’s really that simple and there is a lot of money on the line for your family.

AfterVault is a great way to be sure this information is there for your family when they need it.