Life insurance benefits can go unclaimed for several reasons, such as if the insurer loses contact with an insured, is not aware that an insured has died, or is unable to locate any beneficiaries. Both the insurance laws and the unclaimed property laws require the reporting and remitting of unclaimed life insurance proceeds, and life insurance companies must be mindful of the requirements in each state, which continue to evolve.
As states actively enforce their unclaimed property laws by way of audits, self-reviews, and questionnaires (often with the assistance of a third-party auditor), insurance companies are not immune. A recent investigation by the New York State Department of Financial Services into one life insurer’s practices has led to a settlement under which the insurer must pay upwards of $10 million in restitution and penalties for the failure to pay unclaimed life insurance proceeds in accordance with New York law.Over 30 states, including New York, require life insurance companies to run periodic searches of in-force policies, annuity contracts and retained asset accounts against the Social Security Administration’s Death Master File (DMF), in accordance with their unclaimed property or insurance laws. Driving these legislative changes are the continued adoption (in whole or in part) by the states of the Unclaimed Life Insurance Benefits Act, a model Act introduced by the National Council of Insurance Legislators, most recently updated in 2014, and the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), a model act introduced by the Uniform Law Commission to assist states in modernizing their unclaimed property laws.
If an insurer finds a potential DMF match, the insurer has a defined period (typically 90 days) to use documented good faith efforts to confirm death via secondary sources and determine whether benefits are due. If due, the insurer must use documented good faith efforts to locate the owner or beneficiary and provide them with the appropriate claim form and instructions. If a beneficiary cannot be found, funds must be reported and remitted in accordance with the unclaimed property laws.
Both the U.S. Government Accountability Office and the Social Security Advisory Board (SSAB) have previously noted inaccuracies in the death data included in the DMF, such as the inclusion of living individuals as deceased and the exclusion of individuals who are in fact deceased. These inaccuracies have been attributed to many factors, such as data entry errors and the lack of independent verification by the SSA of the death data prior to its inclusion in the DMF. Such inaccuracies also mean that the DMF that is put out by the National Technical Information Services is incomplete – missing approximately half of actual deaths since 2013.
While DMF comparisons are required by many states, additional sources are available to assist life insurance companies in determining or verifying life status, including cross-checking death information against obituaries and cemetery records, or researching court records, probate files or genealogy sites. While time and resource intensive, searches such as these can prevent funds from becoming dormant, thereby reducing the reportable population of unclaimed property, help the insurer maintain compliance with both the unclaimed property and insurance laws, and drive the owner reunification process.
Life insurers may not have the resources readily available to dedicate to researching external databases, running life status searches, performing outreach campaigns, and processing claims, and should consider outsourcing to unclaimed property professionals with the capacity and expertise in this field.
Statutory requirements and reporting obligations are subject to change and frequently do. We recommend implementing processes, policies, and procedures around the DMF search requirements, owner and beneficiary outreach, and reunification, and marry these with your current unclaimed property program.
If your organization is experiencing challenges, contact MarketSphere to learn about effective Owner Reunification Services available, as well as other managed services that are available to meet all of your escheat compliance needs.
 New York State Department of Financial Services Press Release. (2022). Acting DFS Superintendent Adrienne H. Harris Announces Columbian Mutual Life Insurance Company to Settle for More Than $10 Million for Failing to Pay Unclaimed Life Insurance Proceeds to Thousands of Beneficiaries. https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202201111,.
 US Government Accountability Office Reports. (2013). Social Security Death Data: Additional Action Needed to Address Data Errors and Federal Agency Access, https://www.gao.gov/products/gao-14-46 and (2016) Program Integrity: Views on the Use of Commercial Data Services to Help Identify Fraud and Improper Payments. Social Security Advisory Board. (2019). Social Security and the Death Mater File. https://www.ssab.gov/research/social-security-and-the-death-master-file.
*Content contained in this article is considered accurate as of the publish date.