Unclaimed Life Insurance Benefits

Last Updated 9/20/17

Issue: Even though every year life insurance companies pay billions in claims on life insurance policies, a percentage of benefits due go unclaimed by policyholders. According to state unclaimed property laws, life insurers must report the proceeds of policies that are not claimed. State unclaimed property laws are generally based on the Uniform Unclaimed Property Act (UUPA), created by the National Conference of Commissioners on Uniform State Laws (Uniform Law Commission) to bring more uniformity to state laws, which recognizes life insurance cannot be unclaimed until it matures, or if there is no claim until the insured reaches the limiting age.

According to the UUPA, life insurers have no proactive duty to determine whether an insured had died in order to make sure life insurance benefits are paid. It has been recognized though, that the question whether life insurers should be required to take proactive measures to determine if a policyholder has passed away is an issue that falls under insurance regulation rather than unclaimed property law.

The need for enforceability and consistency has compelled state legislatures to commence enacting laws requiring life insurance companies to conduct database searches using the U.S. Social Security Administration’s Death Master File (DMF) or similar database and engage in outreach efforts to beneficiaries and report to state regulators at the completion of these efforts. State insurance departments are diligently working with their legislatures to best resolve the issue of unclaimed benefits. The National Conference of Insurance Legislators (NCOIL) adopted the Model Unclaimed Life Insurance Benefits Act in 2011 to address the issue of unclaimed benefits. NCOIL revised the model in 2014.

The Committee to Revise the Uniform Unclaimed Property Act of the Uniform Law Commission is working to adopt revisions to the UUPA consistent with NCOIL’s Model Unclaimed Life Insurance Benefits Act. The uniform rules will allow insurers to hold on funds in unclaimed insurance policies and annuities for a period of three years running from the date of notice of death after which the funds would escheat to the state. If the insurance company is not able to confirm the policyholder’s death, the rules would not apply. In addition, an initial draft included a requirement that life insurers use the DMF or another comparable database, which may be enacted as part of unclaimed property laws or as part of the insurance code.

Status: The Unclaimed Life Insurance Benefits (A) Working Group of the NAIC Life Insurance and Annuities (A) Committee has recommended that a new NAIC model law be developed to address the issue of unclaimed death benefits. The Working Group’s recommendation and model law development request for the new NAIC model law were adopted by the Life Insurance and Annuities (A) Committee at the NAIC 2014 Fall National Meeting. The NAIC Executive (EX) Committee approved the Committee’s model law development request at the NAIC 2015 Spring National Meeting. Through the work of the Unclaimed Benefits Model (A) Drafting Subgroup, the Working Group has begun the process of developing the new NAIC model law. The Subgroup first used a comparison chart of the provisions of the now disbanded Investigations of Life Insurance and Annuities Claims Settlement Practices (D) Task Force’s Lead States draft model act and the NCOIL model to decide what provisions should be in the new NAIC model. The Subgroup distributed an initial draft of the proposed new NAIC model to address unclaimed benefits in November 2015, for a public comment period ending Dec. 14, 2015. The Subgroup finished its review of the comments received and forwarded a revised draft to the Working Group for its consideration at the NAIC 2016 Summer National Meeting. The current draft’s provisions are mix of provisions from the Lead States draft model act and the NCOIL model, such as retroactive application. However, the current draft contains some additional important provisions that the NCOIL model does not, particularly regarding lapsed policies. The draft model requires a look back of 18 months for any lapsed policies, and requires an additional search be performed semi-annually for any policies that might have lapsed during that time frame. The NAIC draft model also contains a provision that gives the commissioner the discretion to exempt an insurer from having to perform the DMF comparisons if the insurer can demonstrate financial hardship or that conducting such comparisons is not cost effective. This provision also gives the commissioner the discretion to phase-in the DMF comparison requirements. The Working Group met in December 2016 and March 2017 via conference call to discuss the draft provisions and to accept additional comments on the draft. During these discussions, the Working Group preliminarily voted to strike the provision related to the model’s retroactive application and return to a prior Subgroup draft that included an applicability provision giving the states options to make the proposed model’s provisions prospective, retroactive or a mix of those two options depending on whether the insurer used the DMF asymmetrically by using the DMF to search for deceased annuitants, but not deceased insureds, prior to the proposed model’s effective date. Given the lack of consensus on this issue and others, which makes adopting the draft as a NAIC model by the 2/3rds necessary vote of the Life Insurance and Annuities Committee and the full NAIC membership difficult, at the NAIC 2017 Spring National Meeting, the Working Group requested additional guidance from the Life Insurance and Annuities Committee as to its next steps. The Committee directed the Working Group to determine the three top issues for which it has failed to reach a consensus and report back to the Committee. The Working Group plans to meet in June via conference call to determine the three top issues for inclusion in its report to the Committee. The Committee made a decision at the NAIC 2017 Summer National Meeting not to move forward with the draft NAIC model since it did not believe it had the necessary number of votes to adopt it as a model law pursuant to the NAIC model law development procedures. Following that decision, the Life Insurance and Annuities (A) Committee decided to disband the Working Group working on the proposed new NAIC model to address the issue of unclaimed benefits.