I’ve just run into a somewhat unique situation regarding life insurance beneficiaries. And not only did I not know how to proceed, none of the company reps I spoke to knew what to do in this situation either.
Let’s say you have two beneficiaries on your life insurance policy. You pass away, and the company can only pay one beneficiary. What happens to the rest of the proceeds?
Well, that depends. If it’s an individual policy, and the beneficiary has passed away, we would expect the unpaid funds to be evenly distributed amongst the surviving beneficiaries. Worst case we would expect the insurance company to pay the funds into the court and basically wash their hands of the issue. This ensures that somebody is going to get the funds.
But what if it’s a group or work insurance policy? Regulations are different for group coverage to start with, it appears that the requirements for paying beneficiaries are not as well regulated for group insurance as they are for individual insurance.
And in another twist, what happens if one of the beneficiaries is alive and well, but just refuses to claim the benefit? What are the obligations of the life insurance company?
As far as I can tell, very little. Nevertheless, there is some urgency to force the insurance company to do something. There’s three valid reasons I can think of:
- The insurance company should not be allowed to simply retain or sit on the funds.
- It could be perceived as disrespectful of the insured to not receive or make use of the insurance that they were paying for (by the same token, memory of the insured may be the reason benefits remain unclaimed).
- If one beneficiary chooses not to receive the benefits, then the insurance benefit they were paying for should go somewhere – not just left with the insurer.
My recommendation? I had little to offer, and my research turned up little in the way of solutions. I had two suggestions. First, contact your provincial insurance regulator and seek advice. Insurance regulators have a very big club with insurers and brokers, and they are consumer-centric. If the regulator has an answer, expect that answer to be implemented as fast as the insurance company can jump :). Secondly, the other beneficiaries could lay claim to the remaining funds perhaps by sending a letter from the lawyer. Now that doesn’t mean they have a claim or will get the funds, but I do think that perhaps such a letter may force an insurance company to respond in some fashion rather than just ignoring the issue.
Let’s say Grampa bought a life insurance policy back in 1950. It’s the type of policy that becomes paid up, so maybe by 1970 no more premiums were payable. Over time, Grampa moves, loses the paperwork, and maybe even loses memory of the policy. As the policy has no premiums due, the insurance company can easily lose track of the insured. Grampa passes away and nobody in his family has any idea that a policy existed. And the company has lost track of Grampa as well – they have no knowledge that he’s passed away and no reason to go checking. So what happens to these polices?
First, thanks to Wawanesa Life for giving me some information on this. It turns out that what happens varies by province. In most provinces once a company reasonably determines they can’t pay a claim as in the second situation above, they keep it on the books for 10 years. After 10 years if the claim is less than $25,000 then the claim funds are simply kept by the insurer. If the claim is more than $25,000 then the insurer is required to keep the claim funds open – they can’t claim them.
BC and Alberta however are a bit different. After 3 years if there’s an assumption they can’t pay the claim as per the above situation, the insurers are required to turn the money over to the province.
Neither one of those situations seems palatable to me. If you don’t claim life insurance proceeds, either the insurance company keeps it, or the government gets it. I can’t think of any two more less worthy recipients for unclaimed life insurance proceeds. Nevertheless, that appears to be the current situation. Please note – I determined this information through my industry contacts so you should not count on this info for any specific information – for something like this you should always refer to primary sources and not depend on an article on the internet.
My recommendation? Let your beneficiaries know that they are named. Here’s what I do – I have my business cards printed two-sided. On the back is a line for the life insurance company name, insured’s name, and policy number. I give my clients two copies of my business card and suggest they complete the back of one of the cards and give it to their beneficiary. That way if the insured passes away, the beneficiary has a card with my name and phone number on the front, and the insurance company’s information and policy number on the back. With all of that info it would be straightforward to call and determine if a policy is in force and a claim needs to be paid.