William Penn Life, 2017 (52. évfolyam, 1-12. szám)

2017-05-01 / 5. szám

Notes from the Secretary's Desk by

Filing death claims:

who’s responsible

IN RECENT MEDIA REPORTS, state regulators have criticized insurance carriers for not paying claims in cases when the insurer knows a policyholder is deceased. Audits of several large insurance companies revealed they were not paying beneficiaries of insured persons known to be dead. Some insurers even had a systematic approach for ignoring deaths of policyholders with no effort to contact beneficiaries. These companies routinely and deliberately disregarded evidence in their files that policyholders had died and failed to follow up with listed beneficiaries.

It's hard to imagine this practice being applied when billions of dollars are at stake, the funds sitting in the investment accounts of insurance companies rather than in the hands of the rightful owners. But then again, it's easy to envision because, well, billions of dollars are at stake!

Regulators concluded that insurers weren't doing enough to pay claims on life insurance policies in these situations. This is disturbing news to the insurance industry. With it comes the "Evil Insurance Company" label, which pops up whenever incidents arise that cast doubt on the integrity of insurers.

Several companies have settled litigations, agreeing to pay millions in back-death benefits, while others remain under investigation. These companies admit no wrongdoing in such settlements, pointing to the fact that most insurance contracts contain language stating the beneficiary must initiate a claim.

How can this happen?

When you pay premiums on a life insurance policy, you expect the family member, charitable organization, funeral home or other individual or entity you select as your beneficiary, will receive the death benefit from that policy upon your passing. Traditionally, insurance companies do not pay beneficiaries until a claim is filed. However, state regulators argue that many beneficiaries are unaware that policies exist and, therefore, do not come forward with a claim. Depending on contract provisions related to non-payment of premiums, some policies will eventually lapse or expire, and the death benefit is never paid.

Now, most insurance policies contain built-in features

that protect the insured and maintain the policy even should premium payments stop.

For instance, the "Automatic Premium Loan" provision allows the insured to borrow from the policy's cash value to pay premiums when due. However, if premiums and loan repayments go unpaid, eventually the loan value will exceed the cash value, and the policy will become null and void.

Another option to maintain an active policy when premiums cease is the "Extended Term Insurance" provision. This option uses the cash value to purchase term insurance and thus provide coverage for an extended period of time. However, death benefit proceeds will be paid only if the insured dies within this period. After this period ends, the policy terminates and no future benefits are payable.

These two options benefit policyholders in providing protection from loss of coverage when premiums are no longer being paid over a short period of time.

But, regulators believe insurers are using these provisions to steal from the policyholder by draining the cash value of the policy after the insured has died.

While it may be true that some companies had knowledge that policyholders had died and neglected to initiate an investigation in processing a claim, let's not lump all companies in this same category because a few bad apples did not live up to ethical values. Most insurers receive a favorable opinion in processing claims when the beneficiary comes forward and provides required documentation. The American Council of Life Insurers says the industry has paid out over $600 billion in death benefits over the last 10 years and is doing a fine job.

Insurers argue that the responsibility for filing claims falls on beneficiaries. People enter into contracts every day so it's the policyholder's obligation to know what's in it. Thus, if the contract states in black and white that the beneficiary has to make the claim, then that is what should be followed.

Nevertheless, some states have laws that go beyond the terms of these contracts and address the company's responsibility to investigate a claim if a policyholder's death is known. Towards this end, some states are enacting legislation requiring insurers to search the Death Master File as a cross-reference to active policyholders.

4 0 May 2017 0 WILLIAM PENN LIFE