Life insurance: Will your heirs get what you’ve paid for?

July 5, 2011

Gotta love those life insurance companies.

According to a Wall Street Journal report, some of them will scour state mortality lists to make sure they aren’t paying out any lifetime benefits (such as from annuities) to people who have died. But they won’t bother to check those lists for life insurance policyholders whose beneficiaries may have some money coming to them.

“That’s not their job,” said fee-only insurance consultant Peter Katt. “It’s in their business interest to avoid paying death claims.”

New York Attorney General Eric Schneiderman is reportedly investigating this, and has subpoenaed the records of nine leading life insurers — including some “very good companies,” according to the Consumer Federation of America’s point  man on insurance James Hunt.

Problems can arise with old policies when the insured person forgets they have a policy, said Hunt. Sometimes, people buy life insurance policies and don’t even know which insurance company holds it; they only know the name of the agent who sold it to them.  Other times, an older policy can become paid in full, so the policyholder no longer gets annual bills. Or the premium on a policy can be paid automatically from the policy’s cash value, so that the insured person loses track of it. Older people who have held policies for a very long time can forget about them, and that’s not a practice limited to the senile, says Katt.

“People need to have an inventory of their assets and they need to make that inventory available to the family,” he said.

No duh, suggests Hunt: “Of course everyone should do that, just like everyone should have a will and keep their Individual Retirement Account beneficiaries up to date and so on and so forth. Responsible people should do that, but of course, everyone does not do that.”

So be that responsible person. If you’re paying on a life insurance policy — or you’ve ever bought one — track it down and give your heirs complete information about it: Where the paperwork is, the policy number, the insurance company, the agent who sold it to you and all other relevant information.  That’s an easy enough assignment, and then you  won’t have to worry about the states’ attorneys general or the insurance companies staying on your trail.

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