In order to receive the death benefit of a recently deceased insured, you have to file a death claim through the life insurance company. This may be a problem if you do not know which company held the insured’s life insurance policy.
Even if you find the life insurance policy or policies, there may be a question as to whether or not you will actually receive the death benefit.
You will need to find out if the policy is still in-force, which will depend on the type of policy and sometimes the insurer.
If the insured passes away at or after the policy has passed the grace period, there is no death benefit. If the insured passes away before this point, there the death benefit will be paid.
Whole life should continue if there is an automatic premium loan provision that will borrow money from the policy’s cash value to pay premiums. Once the cash value is exhausted, the policy will lapse.
With universal life, each month the company will deduct from the cash value the cost of insurance (mortality cost), expenses charges, and other costs. Once the cash value is exhausted, the policy will lapse.
Typically, you will receive the money, if the death occurred while the policy was in-force, meaning all premiums payments were made up until the time of death. If a certain amount of time since the death occurs, the insurer will pay the benefit with interest from the date of death; the amount of time varies by insurer.
Other policies such as variable life, variable universal life, and survivorship life policies of each type will stay in-force, depending on whether they are a type of whole or universal life.
If a policy lapsed – meaning the insured stopped making premium payments before their death – there is a chance that you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of the two options: extended term or reduced paid up.
Extended term is when the insurance company uses the cash value of the policy to buy a short-term life insurance policy. With reduced paid up, the insurance company will keep the policy in-force but reduces the death benefit.
If the policy lapses and the extended-term period expire before the insured’s death, the policy is worthless. If the insured dies before the extended-term is up, the beneficiary will receive the death benefit.
If the policy lapses because the insured died (thus ending premium payments), the beneficiary will still collect the full death benefit, regardless of when the extended term as up.
The following is a checklist of tips for keeping life insurance policies where the beneficiaries may find them as well as for other places where beneficiaries should look:
· Keep all your financial records – especially your life insurance policy – in one place. Your beneficiaries should not have to search your house from top-to-bottom.
· Safety deposit box – if the beneficiary has access to it.
· Filling cabinet, address books, etc.
· Personal computer
· Canceled checks or copies from their bank – Look for checks made out to insurance companies
· Check credit card statements – Credit card companies also issue life insurance.
· If you are a beneficiary, ask those who may have known about the insured’s finances. For example, family members, friends and advisors.
· Check probate court records for details of the insured’s estate – for details of your relative’s estate.
· Current or prior employers – The Human Resource Department will have knowledge of any group policies.
· The Medical Information Bureau (MIB) – They offer a “policy locator service”, which can help find lost life insurance policies by submitting a decedent’s name – $75 for mail-in orders and $34 for online orders.
· Contact every insurance company with which you had a policy – even if you’re not sure it is still in-force.
· Check the mail for a year after death for premium payment notices – If a policy is fully paid up, there will be no more premiums due. However, they may still send notices about the status of the policy.
· Review the insured’s income tax returns for the past two years – Look for interest income and interest expenses paid to life insurance companies.
· Check to see if the insurance company has changed names – This can be done through your state’s insurance department or A.M. Best’s website.
· Check with the state’s unclaimed property office – After a number of years (typically three years), if an insurance company holding the unclaimed money cannot find the rightful owner, it must turn over either the full death benefit or the cash value to the state.