Life Insurance Practices Improved at States’ Behest

A coalition of 19 different States has persuaded the Prudential Group to change its practices with regard to unclaimed property. The Prudential Group is one of the biggest issuers of life insurance policies in the nation. The federal district of Washington, D.C. was also instrumental in the agreement.

Steven Grossman, who serves the State of Massachusetts as Treasurer, announced that from now on, Prudential will use improved practices in the distribution of death benefits to those who are entitled to receive them. Prudential will use the public records of deaths as well as its own internal database in order to notify beneficiaries of proceeds they should receive. This change should not only help additional people to receive money that may be much-needed in some cases, but will also ensure that they receive funds in a much more timely fashion.

Grossman commented that although the agreement with the Prudential Group does not involve any fines, it “will undoubtedly result in improved insurer accountability and business practices in Massachusetts and across the country.”

Grossman has a track record of helping to persuade life insurance companies to improve their notification of beneficiaries. During the early months of 2011, he reached a similar settlement with the John Hancock Life Insurance Company after the firm’s policies had been audited. In the Hancock case, Massachusetts ended up taking control of millions of dollars; the state will be in charge of making sure that these funds are delivered to their rightful owners.

People who purchase life insurance policies do so in the full expectation that after their deaths, their beneficiaries will receive the benefit that has already been paid for. Unfortunately, some insurance companies have been lax in their efforts to comply with this expectation. In most cases, of course, when the beneficiaries notified the company of a death, policy proceeds were paid out without difficulty. With life insurance, however, sometimes the beneficiaries of a policy have no idea that the policy even exists. It may have been purchased decades earlier and the paperwork long since lost due to a series of moves, sometimes from state to state. Over time, all memory of the policy may even vanish – at least for beneficiaries who never see premium notices or other information that may come in the mail.

In such cases, some life insurance companies have held that unless they are told that a death has occurred, they have no way of knowing about it. The states involved in the settlement begged to differ. There are, in fact, public sources of information about individual deaths in the United States. One of the most prominent is the Social Security database, as loved ones of the decedent usually know to notify the federal government to cease Social Security benefits. The States have maintained that there is no valid reason why insurance companies cannot search these public records and discover deaths on their own.

From now on, the Prudential Group and other companies that have reached agreements with the states will be responsible for distributing the “unclaimed property” of death benefits even in cases in which the beneficiaries have not requested the funds.