Myth Buster: A Life Insurance Company Is Legally Obligated to Find Beneficiaries

MYTH: If a life insurance policyholder dies and you’re a beneficiary, the insurance company must contact you.

FACTS: No, not by law. That doesn’t necessarily mean some life insurance company executive is on a beach sipping margaritas courtesy of your late Uncle Charlie’s premiums. Insurers “work very hard to make sure they locate beneficiaries and make payments on a timely basis,” says Stephen M. Thaler, senior vice president of Hilb Rogal & Hobbs, one of the world’s largest insurance providers.

The law may not force firms to find beneficiaries but it does mandate that unclaimed benefits be turned over to the state government. And there they stay unless claimed. "Life insurance claims are valid forever,” says Scott Simmonds, an insurance consultant based in Saco, Maine. “If you found a life insurance policy owned by your grandfather who had died 15 years ago, you could—or the beneficiary or the beneficiary’s estate could—submit the claim for payment.”

So, do many benefits go unclaimed? Estimates range wildly, from 1 percent to 30 percent. Some of that discrepancy might be attributed to different understandings of what an unclaimed benefit is. For example, if payments on a policy stop coming, the insurer isn’t required to determine whether the policyholder died or simply wants to let the policy lapse. It’s up to the policyholder’s estate or a beneficiary to inform the insurer of a death, which would trigger the firm’s effort to distribute benefits.

The fact that unclaimed benefits exist is fertile ground for opportunism. “There are a number of entrepreneurs who send out letters or e-mails to people saying, ‘We know where money of yours is buried. Pay us a fee, and we’ll tell you where it is,’ ” says Sally Hurme, an AARP consumer affairs expert. Not that they won’t do that, says Hurme, but usually they’ll simply steer you to a website that lists unclaimed assets—which you could have accessed on your own.

Hurme, however, will tell you for free where to start researching: National Association of Unclaimed Property Administrators.