New York Launches Investigation into Unpaid Life Insurance

Most life insurance companies behave in an above-board and ethical manner, but some of the “bad apples” are currently under investigation by the Attorney General of New York State. The State Comptroller is also participating in the investigation, which concerns millions of dollars that possibly should have gone to policy beneficiaries but were withheld.

The investigation is intended to serve as a deterrent to life insurance companies that may collect premiums and then be tempted not to pay out benefits to beneficiaries as indicated on the policy documents.

Speaking on behalf of himself and the Comptroller, Eric Schneiderman, Attorney General for New York, announced that “together, our offices will undertake the largest and most comprehensive investigation of life insurance practices in the country.“

The investigation was first started earlier during 2011 and was cued by the failure of some companies to turn over to the Comptroller’s office the proceeds that had gone unclaimed from some policies. Insurance companies are required to turn in such proceeds and have three years to do so, according to the abandoned property law in New York state.

At the same time, Thomas DiNapoli, the New York state Comptroller, had begun conducting a separate review of life insurance providers. The audits produced by this report will be used in any prosecution taken under the auspices of the attorney general’s office.

Response From the Industry

Thomas Workman represents the industry in his role as President of New York’s Life Insurance Council.

He issued a statement expressing confidence in the companies operating in New York, insisting that “We pay death benefits when a legitimate claim is filed with us,” adding that “We have no problem with some kind of reasonable new standard being applied prospectively, but we’re in the business of paying death benefits in accordance with our contracts.”

Despite Workman’s statements, some industry policies and procedures are coming under criticism or at least question. For example, some insurance companies in New York have been employing the death master file produced by the Social Security Administration to decide when they should stop annuity payments to survivors who are receiving them as part of a death benefit. These same companies, however, do not use the death master file in order to decide when to begin paying death benefits for policy holders who die.

State regulators would like to see a system put in place that uses more techniques for ascertaining and verifying the deaths of policy holders. Companies should make a more concerted effort to understand when they need to begin paying benefits, according to state regulators.

In total, life insurance companies paid out approximately $36 billion in benefits to residents of New York during 2009. The vast bulk of the funds was paid out in lump-sum or one-time payments, with only about $6 billion represented by benefits that could be classed as annuities. Almost 10 million residents of the state carry life insurance policies.