Florida Insurance Commissioner Kevin McCarty led a task force investigating the life insurance industry. What was uncovered was the life insurance industry failed to properly and timely pay life insurance benefits to beneficiaries. Instead, life insurance companies followed an inequitable industry-wide claims practice requiring beneficiaries to contact the insurance company. If the insurance company was not contacted, often because the beneficiary didn’t know they were one, the insurance company never paid, but rather kept the money.
Even worse, the investigation discovered that the nation’s largest insurance companies have a systemic practice of not paying benefits on millions of whole life insurance policies – even when the companies know that the policyholder was deceased. McCarty stated, “what we found is that companies have actual knowledge in their files that people have died, yet they have neglected to initiate an investigation and pay the claim.” Twenty-five insurance companies, without admitting wrongdoing, have agreed to pay more than $7.5 billion in back death benefits in a series of settlements reached with different states, including Florida. Thirty-five companies have not settled and remain under investigation.
The task force learned that one way insurance companies learn of the death of their insured is through the use of the Social Security Administration’s Death Master File. However, instead of notifying beneficiaries that they are owed a death benefit, many insurance companies used the Social Security Administration’s Death Master File only to their advantage, only cutting off paying annuity or retirement benefits to the deceased insured.
Even worse, was a practice discovered involving whole life insurance policies, in which many insurance companies continued to make unneeded premium payments to themselves using the accrued cash value of their deceased insured’s policy, thereby reducing the monies owed to the beneficiaries.
Florida is leading the nation having passed into law SB 966 which shifts the burden to the insurance companies: requiring that all life insurance companies operating in the state of Florida must, retroactively to 1992 and annually from now on, compare their list of insureds with the Social Security Administration’s Death Master File, and follow specified requirements within 120 days after learning of the death of an insured to locate and inform the beneficiary of the deceased insured. The law became immediately effective on April 12, 2016. If after complying with these active requirements a beneficiary cannot be found, the life insurance company must turn the monies over to Florida’s Unclaimed Property Program, overseen by Chief Financial Officer Jeff Atwater, and the state will continue to search for the beneficiary. Florida consumers should check this list at a minimum annually.
Rightfully so, Florida Insurance Commissioner Kevin McCarty called this new law a “monumental win.” For more information watch Lesley Stahl’s segment on CBS’ 60 Minutes.