How to Collect on Lost Life Insurance Policies

A relative has just died. He had a life insurance policy with you listed as the beneficiary. There's just one problem: the life insurance policy is missing. You have no idea which insurance company wrote it.

If you find the missing life insurance policy in the future, are you still eligible to receive the death benefit?

Hope they paid their insurance bills

If you're a beneficiary and you find the lost life insurance policy shortly after the insured dies (within six months to a year, for example), claiming the death benefit should be trouble-free.

First, determine if the insured had term or permanent life insurance. If the insured held a term policy, you'll receive the death benefit if he died before the end of the policy term. If he died after the policy expiration date, you would get nothing.

If the insured had a permanent life policy, you'll receive the money if the death occurred while the policy was "in force," meaning all premium payments were made up until the time of death. If the death was a while ago, you'll receive the benefit with interest from the date of death.

If the life insurance policy lapsed — meaning the insured stopped making premium payments before he died — there's a chance you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of two options:

"Extended term" — The insurance company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase.

"Reduced paid up" — The insurance company will keep the policy in force permanently, but will reduce the death benefit.

Gerry Brogla, an actuary for State Farm, says in the majority of the cases at his company, the permanent policy continues as extended term if it lapses. At State Farm, extended term is the default option for most permanent policies.

If the policy lapses, and the extended-term period expires before the insured dies, the policy is worthless and the life insurance beneficiary will get nothing. If the insured dies before the extended-term period is up, the beneficiary will receive the death benefit. If the policy lapsed because the insured died (thus ending premium payments and causing the insurance to be placed in extended-term status), the beneficiary will still collect the full death benefit, regardless of when the extended term was up. The beneficiary always needs to supply the insurance company with a death certificate to verify the date of death.

There is no time limit during which a life insurance beneficiary must step forward to collect the money, according to Jack Dolan, spokesman for the American Council of Life Insurers. "If a person shows up 30 years after [the insured's] death, the company still makes good on it," Dolan assures.

What happens if no one ever reports the death?

If the insured dies and the insurance company does not learn of the death, the policy lapses. Insurance companies will take steps to find out why a policyholder stopped making payments.

When an insurance company stops getting payments, it sends letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If that comes up empty, the company will then lapse the policy.

If a beneficiary to a policy never steps forward, it unfortunately means the insured paid money to a policy throughout his life and his beneficiaries never see a penny. This is why its a good idea to make sure beneficiaries are aware of any life insurance policies you have.

If you're lucky, the state may have your money

In some cases when a beneficiary fails to claim a death benefit for several years, the money is transferred to the state where the insurance policy was purchased under the escheat laws.

If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state comptroller's department within three to five years of the insured's death. The money is transferred to the state where the insured bought the policy. The money is considered "unclaimed property" and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller's department maintains a database that lists the names and addresses of lost life insurance beneficiaries.

Many states will try to contact life insurance beneficiaries in an effort to pay the death benefits. In Texas, for example, the names and addresses of the beneficiaries are published annually in each county in the state. In New York, the Web site of the New York State Comptroller's Office of Unclaimed Funds has an online search to find any unclaimed death benefits owed to you. You can find out the procedures in your state by contacting the office of your state comptroller or treasurer.

Keep in mind your chances of finding the policy with the state are slim. The insurance company has no obligation to hand the money over to the state if it's unaware the insured died. In most cases, it's the beneficiary who contacts the insurance company.

Also, the insurer only transfers the money to the state three to five years after it cannot find the beneficiary but knows the insured died. If the state doesn't have the death benefit, it's likely the insurer is still looking for the beneficiary or doesn't know the policyholder has died.

Unclaimed death benefits are rarely transferred to the state. Dave Potter, a spokesman for Hartford Life, says less than 1 percent of his company's death benefits go unclaimed.

Del Chance, a life insurance claims manager at State Farm, says, "Turning over life policy benefits to an individual state after the death of an insured is extremely rare. State Farm utilizes their own search techniques as well as outside vendors to locate lost beneficiaries in the event of the death of one of our insureds. By and large these procedures have always located the beneficiary.

Tips for making sure your life insurance beneficiaries get your death benefit:

1. Give your beneficiaries your policy information. It can be a difficult and awkward conversation, but an important one.

2. Keep all your financial records (especially your life insurance policies) in one place. Don't force your beneficiaries to search your house from top to bottom after you die.

Tips for looking for lost life insurance policies:

1. Go through canceled checks or contact your relative's bank for copies of old checks. Look for checks made out to insurance companies.

2. Ask those who may have known about your relative's finances. Speak with the relative's lawyer, banker or accountant. Also contact the relative's insurance agent.

3. Contact your relative's past employers. They might know of possible group life insurance. The insured might have also purchased supplemental life insurance through work.

4. Check the mail for a year. Premium bills and policy-status notices are usually sent annually.

5. Look at income tax returns for the past two years. Check for interest income from policies or expenses paid to life insurance companies.

6. Contact the Medical Information Bureau. If your relative bought life insurance fairly recently, there might be a trail of the companies to which he applied. The Medical Information Bureau (MIB) maintains a database that might show if insurers requested your relative's medical information within the past seven years. Record searches can be requested through the MIB's Policy Locator Service and cost $75. The MIB says that nearly 30 percent of searches turn up leads.

The Hunt For A Missing Life Insurance Policy

Uh-oh! You're the beneficiary of a relative who just died, but their policy is nowhere to be found! What do you do? Well, don't panic, because if you find it in the near future, you may still be able to claim the death benefit. Here's what to do if a life insurance policy is missing:

1. Look through canceled checks or go to the relative's bank and request copies of any old checks. When reviewing the checks, see if there are any made out to life insurance companies.
2. Ask your relative's lawyer, insurance agent or accountant and see what information they can give you on your relative's finances.
3. Call their old employers and see if they bought into the company's group life insurance.
4. Call the Medical Information Bureau (MIB)-an organization that maintains a database showing if insurers requested your relative's medical information. If your relative applied for a life insurance policy within the past seven years, the MIB will more than likely have some kind of paper trail to help you find it.

Naming a beneficiary
If you are making someone your beneficiary, here are a couple of things you will want to do:

1. Be sure to provide your beneficiary with your life insurance policy details, such as policy number, insurance agent's name, company phone number and email address.
2. Keep your records together. To make it easier on your beneficiary, be sure to keep all of your records (financial and medical) together in one place. This will help alleviate any panic or stress if your beneficiary needs to find something after you have passed.

Different kinds of policies

• Term policy—If your relative had a term life insurance policy, and they died during the term and paid their premiums, the named beneficiary will receive their death benefits. If they died outside of the term or failed to pay their premiums, you won't receive anything.
• Permanent policy—If the policy was in force at the time of death, the named beneficiary will receive the death benefits. If the relative died a while ago, the beneficiary is entitled to the death benefits plus the interest accrued from the date of death.
• Lapsed policy—If your relative had a permanent life insurance policy and they stopped making payments and the policy lapsed, the insurance company could switch its status to one of the non-forfeiture options selected at purchase or specified in the policy. These options include extended term, reduced paid-up, cash surrender value, and loan value. In most cases, laws specify that there are certain amounts that must be returned to a policyholder or beneficiary even if premiums were not fully paid.

Lapsed Policy Non-forfeiture Options

• Extended term uses any built up cash value to buy a term life insurance policy in the amount of the current policy. If the insured dies before the term ends, the beneficiary collects the benefit. Otherwise, the beneficiary gets nothing.
• Reduced paid-up means that the life insurance company uses the cash value of the policy to buy as much insurance as possible. This reduces the death benefits, but keeps the policy in force.
• Cash surrender value refers to the amount of cash value a policy has. This amount is returned to the policyholder or beneficiary and the policy is canceled.
• Loan value is the amount of the policy's cash value available as a loan. This amount will be returned to the policyholder or beneficiary and the policy will be cancelled.

If the policy lapses due to the death of the insured, the beneficiary will collect the full death benefit. Also, there is no time limit on when the beneficiary can collect the death benefit. The only requirement is that the death certificate is presented to the life insurance company to verify the insured's death. If the beneficiary never comes forward, then no one receives the money.

Unreported death
If the policyholder dies and the insurance company isn't informed, the policy will lapse. In this case, the life insurance company will send letters informing the insured that payment was not received and their policy may lapse if this continues. If there is still no response, the insurance company may initiate a search, but if no answer is found, the policy will automatically lapse due to delinquency of payment.

Unclaimed death benefits: are they gone forever?
If a beneficiary doesn't collect death benefits, and the life insurance company can't find the beneficiary after a few years, the money is transferred back to the state where the life insurance policy was originally purchased. The full amount must be turned over to the state comptroller department within three to five years of the insured death. There, it is put into a bank account and considered "unclaimed property."

A database with the names and addresses of lost beneficiaries is located at the state comptroller's office, and many times, they try to find the beneficiaries to distribute the death benefits to. Depending on your state, you may be able to go online, look in the paper for any unclaimed death benefits, or call the state comptroller or treasurer for information.

It should be noted that if the life insurance company doesn't know the insured has died, they are not required to turn the money over to the state. If the state doesn't have a death benefits law in place, then the money will remain at the insurance company and they can continue to search for the beneficiary. Also, it is very rare for money to be turned over to the state, because most insurance companies have their own search techniques to find beneficiaries.

Get the Home Insurance Facts

Buying a home is one of the single largest investments that most people ever make. If you need to protect that investment, your main line of defense is homeowners insurance.

Just the basics

Most standard homeowners insurance policies will provide coverage for damage to your home (and many of the items in your home) caused by:

• Theft
• Fire and lightning
• Smoke
• Frozen pipes
• Ice and snow

Homeowners insurance also provides coverage for liability claims, medical payments to third parties, and legal costs if a lawsuit is brought against you. The most common amount of liability coverage included in a homeowners policy is $100,000, but you may need much more, depending on your circumstances.

What's not covered?

Read your homeowners insurance policy to find out exactly what is and is not covered. Do this before you suffer a loss, so you won't be surprised. Most insurers exclude damages caused by an act of war, nuclear accident, flood, earthquake, and terrorism, although you may be able to purchase special policies or endorsements that will cover these events.

A diamond is forever. Or is it?

Most homeowners insurance policies limit coverage for certain high-priced or hard-to-replace items. Additional endorsements or floaters will be necessary to protect items like engagement rings, watches, furs, antiques, and other valuables. You'll need to have each item appraised.

How much is enough?

Mortgage lenders require that borrowers purchase a minimum amount of homeowners insurance (typically equal to the appraised value or the purchase price of the home). But this is often not the amount of coverage you truly need. Instead, find out how much it would cost to rebuild your home, and consider insuring it for that amount.

You get what you pay for

Are you willing to pay more to have damaged personal property replaced? If so, consider purchasing replacement cost coverage with your homeowners insurance. When it comes to valuing property, insurers generally use one of two methods. The first, actual cash value, pays you an amount equal to the replacement value of the property, minus depreciation for the years you owned the item. The second, replacement cost, is more expensive, but it pays you the full value of the item today, so that you can replace the old item with a new one.

How deep are your pockets?

To save money, consider choosing a deductible of $250, $500, or even $1,000. In the event of a loss (e.g., water damage from a leaky roof), you'll be required to pay this amount out of your own pocket before your homeowners insurance takes over, but in the meantime, you'll save on premium charges.

Sound the alarm

Don't forget to tell your insurer if you have a home security system (e.g., fire, burglar, emergency). Most insurers offer discounts for such safety features. You may also qualify for a lower insurance premium if you live near a fire department or hydrant, own a newer home, own a home built out of fire-resistant materials, or get your auto insurance from the same company.

Shop around

Get quotes from several insurance companies when shopping for homeowners insurance. But remember, the lowest price does not always equal the best deal. Compare the coverage each policy offers, and check with your state's department of insurance to make sure that each company you're evaluating has a good reputation in the industry.

How Much Life Insurance Do You Need?

You might be asking yourself this question: "How much life insurance do I need?"

Some financial advisors will tell you to multiply your annual income by seven. Others will tell you to buy only enough life insurance to replace the income you are expected to make between now and retirement. Some might recommend you buy only enough life insurance to cover your present debts.

While you probably can do all of those calculations in a minute, they won't give you the right answer. Simply put, calculating your life insurance needs takes homework. It requires you to do an inventory of all of your finances, and to think long and hard about how your beneficiaries would maintain their lifestyles without you. You also must consider inflation and, if you have children, future college education costs.

What not to do

What's the wrong way to calculate how much life insurance you need? Here are some common but misguided methods.

1. Multiply your annual salary by seven or eight: While it’s a simple formula, it fails to take into account your individual needs and obligations. Life insurance experts say there’s a good chance you’ll buy too little or too much coverage, simply by using a formula such as this.

2. Calculate your "human life value:" This method gives you the income you will earn from your present age until your retirement age, assuming a rate of interest that represents salary increases throughout that period. The problem is it does not take into account what your beneficiary's specific needs will be. You also end up with a figure that requires you to buy a huge amount of life insurance, possibly more than you may need. "There's all sorts of landmines in this," says Michael Snowdon, an instructor at the College of Financial Planning in Denver. "When you calculate this way, you're working with broad brush strokes."

3. Cover your debts. This involves buying only enough life insurance to cover debts such as your mortgage, student loan bills, or outstanding car notes. This method does not consider any future debts or needs, such as childcare or college education costs.

A classic formula

Many experts say the best way to pinpoint a smart life insurance figure is through a needs analysis, which can be broken down into a simple formula: Short-term needs + long-term needs - resources = how much life insurance you need. Snowdon says this method is "probably the most accurate approach in what is an inaccurate and imprecise science."

Experts advise you do an analysis at least once every three years, or whenever you have had a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.

Five steps to a needs analysis

Step 1
Add up all of your short-term needs. These can be placed into three categories: final expenses, outstanding debts and emergency expenses. Among final expenses are medical, hospital, and funeral expenses, attorney or executor fees, probate court costs (if you do not have a will), and any outstanding taxes that would need to be paid if you died. Among outstanding debts are credit card balances, auto loans, college loans, and all other outstanding bills. Emergency expenses should include a cash reserve for medical emergencies and repairs to your home or car.

Calculating final and emergency expenses can be complicated, because you don't have a crystal ball that tells you how much your medical or hospital expenses will be, or if you even will have any.

Step 2
Next, add up your long-term debts, which include your mortgage and college tuition.

Calculating an education fund is tricky because you have no idea where your children will be going to college. Perhaps the best method is to use the present average college cost in the United States and the number of years away your children are from entering college. The average college costs for the 2002-2003 school year were $4,081 annually for a public, four-year institution, and $18,273 annually for a private, four-year institution, according to The College Board.

The U.S. Department of Education reports college costs traditionally have risen at about 5 percent annually, so you need to figure out what the cost will be when your child goes to college. (To calculate what costs will be in the future, see the last section: “A must-know: the equation for the future value of money.” Also be sure to calculate what the entire education will cost while taking into account the increased costs each year.)

Step 3
Next, calculate family maintenance expenses. These include such necessities as childcare, food, clothing, utility bills, entertainment, travel, and transportation. Calculate this figure based on a year's worth of expenses, then multiply that times the number of years you want to provide this income.
Once you've done that, add your short and long-term debts and your family maintenance expenses.

Step 4
Now that you've tallied all of your income needs, figure out what resources you have to meet them. To do this, add all available savings, stocks, bonds, mutual funds, existing life insurance (such as group life through your employer), and Social Security. You and your spouse can find out how much you'll get through the Social Security Administration (SSA) by visiting the SSA’s website, where you can get an estimate of how much you should have in Social Security benefits. Also add your present salary, and assume 5 percent compounded interest each year if you expect salary increases over time.

It's important to count only liquid assets (those that could be quickly converted to cash) among your resources. You shouldn't count items such as your home or automobile, because selling them for cash when you're gone would mean changing your family's lifestyle.

Step 5
Subtract your resources from your total expenses. The figure you get should represent the amount of life insurance you should buy.

Don't be daunted

Snowdon says the final figure that shows how much life insurance a person needs can be quite alarming. If you end up with an astronomical figure that requires a premium that is too high, he recommends you go through the analysis again and select areas for which you think you can allocate less money.

"Many people will look at the final figure and say, 'I can't do that,'" Snowdon says. "You have to look at it, figure out which is the most crucial, start making adjustments, and go from there."

A must-know: the equation for the future value of money

Calculating your life insurance needs will require two equations you may have picked up in Finance 101: the future and present value of money.

The future value of money equation tells you how much your money will be worth in a given number of years while earning a given rate of interest. This equation is essential if you are calculating how much money you'll need in the future because of inflation, or what your death benefit will be if you choose to invest the money at a given interest rate.

The present value of money equation tells you what your money is worth before it has been invested for a given number of years at a given rate of interest. This is important if you have an amount of money you need in the future, and you need to know how much life insurance coverage you should buy now.

If this sounds complex to you, don't fret. As long as you have a calculator (preferably a financial calculator, which is used by accountants and finance professionals), these equations are no sweat.

Here's how the future value of money equation works: Say that average college education costs are $20,000 annually for a private four-year institution, and you want to figure out how much it will cost in four years if college costs keep going up 5 percent per year. You would multiply 20,000 by 1.05 (1 represents the present cost, and .05 is 5 percent inflation) four times (or 1.05 to the fourth power).

So your equation would be this:

20,000 x (1.05)⁴
or
20,000 x (1.05)(1.05)(1.05)(1.05)
The answer is $24,310.13.

How to Buy Life Insurance

Buying life insurance is an easy way to protect your family after you're gone. If you know what to look for, you can get great coverage at a price you can afford.

Why Buy Life Insurance?
One of the biggest reasons to buy life insurance is to provide money in case of death. If you're single and don't want to leave money to anyone, you may not need life insurance. But as you take on more responsibilities and your family grows, your need for life insurance increases. The proceeds from a life insurance policy can replace the income lost to your family upon your death. The life insurance death benefit can also pay off debts and expenses, provide money to a charity or organization, and cover final and estate expenses.

Term or Cash Value?
There are two basic types of life insurance: term life insurance, which provides life insurance coverage for a specified period of time (the term), and whole life (permanent or cash value) insurance, which combines a death benefit with a cash value component. Term life insurance generally offers the most protection for the smallest price. Many term policies are renewable, meaning that you can purchase them again for the same term even if your health or circumstances have changed, although the premium may increase on renewal. Some term policies (called "convertible") will permit you to convert the term life insurance policy to a permanent one at some point without undergoing an evaluation.

The advantage of cash value life insurance is that it offers lifetime protection. However, some types of permanent life insurance act more like investments, meaning that their ultimate value depends in part on the performance of their stocks and bonds. Permanent life insurance generally has much higher premiums, especially initially, but unlike term insurance, it can also be used as an investment and retirement vehicle. With term life insurance, you protect you family's financial future for a smaller premium payment. For a higher premium, permanent life insurance gives you financial protection now and savings for the future. To further compare types of life insurance, see our article on term vs. cash value life insurance.

Choose a Coverage Amount
The amount of life insurance protection you should buy depends on how much income your survivors will need, how much you own and owe, and the amount of other life insurance available to you. If you're married, both you and your spouse should consider buying life insurance. One of the easiest ways to estimate how much life insurance protection you should buy is to use a life insurance needs calculator.

What Term?
Term life insurance is usually offered for periods ranging from 1 to 30 years. Consider choosing a term that matches your need for life insurance protection. For instance, if your main reason for buying life insurance is to protect your 7-year-old twins until they're out of college, you'll want to buy a policy with a term of at least 15 years. Different types of term life insurance will have different premiums. Level term, in which the death benefit stays the same over the course of the policy, and renewable and convertible term life policies will tend to have higher premiums, but may offer the protections you want.

Premiums
How much you pay for life insurance will depend on a number of factors, including your age, your health, whether you use tobacco, your family health history, and the type and amount of life insurance you're buying. Keep in mind that the premium payments may change later with some types of life insurance. If your policy does not guarantee that premiums will stay the same and that benefits will not decrease, that means the insurance company may raise the rate or lower the benefits. Be especially sure to understand how and why the premium and benefit payments are calculated, and what is guaranteed. Although many policies come with example illustrations of how the insurance company expects the policy to perform, your policy may not get the same performance. If you expect or need guaranteed premium payments and benefits, make sure your policy provides them.

Shop Around
When comparing life insurance quotes, make sure that the policies and insurance coverage you're comparing are similar. And remember, any policy that you buy is only as good as the company that issues it. Find out what rating the company has received from major ratings services, such as A. M. Best or Standard & Poor's. These companies evaluate an insurer's financial condition and claims-paying ability. The company giving you an insurance quote should provide you with this information. You can also contact your state's department of insurance to find out more about an insurer's record.

Submit an Application
Once you're ready to purchase a life insurance policy, you'll fill out a life insurance application that contains questions about your current and past health history and lifestyle. You'll generally be required to take a medical exam, arranged and paid for by the insurance company. The answers you give on your application, along with the results from the medical exam and your past health history, will help the insurance company determine whether to offer you a policy, and if so, at what price. Be sure to answer the questions fully and carefully, because intentionally misrepresenting yourself or hiding information can cause the policy to be cancelled. There are many life insurance options and many companies. Even if you're not eligible for a policy from one company, you can usually get a policy somewhere else.

Read and Understand Your Policy
Life insurance contracts aren't written to be exciting, but read and understand yours. Policy provisions, the amount of benefits, the premium, and other charges you'll pay will be listed along with other important information such as the beneficiaries you've named and the premium guarantee period. Make sure you understand everything in the policy. Under the laws of your state, you may have a "free look" period (typically at least 10 days) during which you can cancel the policy without penalty. If your life insurance policy doesn't meet your needs, it's easier to change it during this period than later, when you may face cancellation penalties.