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Amount of Unclaimed Property

According to the Wall Street Journal, state governments collect billions in unclaimed property every year.  See Scott Thurm & Pui-Wing Tam, States Scooping Up Assets From Millions of Americans, Wall Street Journal – A1 (Feb. 4, 2008).  In recent years, states have broadened their abandoned property laws to increase the amount of unclaimed property turned over to state governments.  Id.  California alone has more than $5 billion in unclaimed property owned by more than 8 million individuals and companies.  Id.

Together, the 50 states held roughly $35 billion in unclaimed property in 2006 and collected about $5.1 billion in assets during that year (only about 1/3 of this property is returned to its rightful owners).  Id.

According to ARC Law Offices of Pennsylvania (see below), Pennsylvania residents purchased $64 billion of life insurance last year, and $14 billion was claimed during that time.  See http://arclawoffices.com/_wsn/page2.html.  ARC estimates that 25-30% of all life insurance benefits are never claimed.  Id. ARC notes that life insurers claim the figure is as low as 1%, but even at 1% of the $64 billion purchased, $64 million will go unclaimed.  Id.

In addition, the demutualization of insurance companies (changing from policyholder-owned cooperatives into public stock companies) has transferred billions of policyholder dollars to state abandoned property funds.  (This is because in a demutualization policyholders are typically entitled to receive stock in the new stock company).  As a result, over $4 billion dollars in life insurance proceeds have gone unclaimed by beneficiaries who never realized that a loved one had a life insurance policy (or even multiple policies).

This problem arises because life insurance policies are typically long-term contracts that can remain in force for decades.  A large number of industrial (or burial) life insurance policies were written by insurers prior to the 1980s.  Many of these are “paid-up” by now, meaning no further premiums are due on the policies, and correspondence between the insurer and the policyholders is infrequent at best (leading to forgotten coverage and lost policies).  Adding to the problem is the fact that life insurers have little incentive to keep in contact with paid-up policyholders as the only remaining duty under the contract will be to pay the death benefit.

In recent reorganizations, many large life insurers reported that they had hundreds of thousands of “lost policyholders” (mostly small-face and industrial life insurance policies) who the company had lost contact with.  For example, the John Hancock Life Insurance Company reported that it had 400,000 policyholders it could not locate when it demutualized.  See Joe Bartolotta, Galvin ‘finds’ 2,000 policyholders, Boston Herald (November 15, 1999).  Each of these policyholders would have received a minimum of $340 in cash or stock.  Id.  The Metropolitan Life Insurance Company announced that it would turn over 60 million unclaimed common shares to state unclaimed property funds.  At $50 a share (slightly below the current trading price of Metropolitan stock) that amounts to $3 billion dollars.

Policy Search Services

If you cannot locate a life insurance policy, but are sure that a family member did own a policy, there are organizations that offer search services (often for a fee), such as those identified in this article - http://www.insure.com/articles/lifeinsurance/policy-finder.html

The Medical Information Bureau (MIB) holds records on over 150 million insurance applications processed during the last 12 years and will conduct a search for a fee of $75.  MIB estimates that over $1 billion in life insurance benefits has gone unclaimed in North America.  Please note that the MIB records cover only the last 12 years, so consumers should not purchase a record search if the policy they seek was issued prior to 1995.

Other Policy Search Services include:

Life Insurance Policy Definitions

Whole Life - Whole life policies (or Permanent policies) provide coverage for the entire lifespan of the insured.  Whole life policies have a savings component, and accrue a cash value that can help families meet financial emergencies.  Typically, annual premiums for whole life policies remain constant throughout the life of the policy.  Initially premiums are higher than the actual cost of the insurance and the excess amount of each premium is held in reserve as the policy’s cash value.  The cash value grows over time and provides funds for the cost of coverage as the insured grows older.  An insured can receive the cash value upon surrendering the policy.

Endowment – An endowment policy is a contract designed to pay the policy face amount upon the death of the insured, or after a specified term (when the policy “matures”). The maturity period may be ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness.  An insured can cash the policy in early and receive a surrender value determined by the insurance company (in accordance with the time the policy has been in force and the premium payments made).

Term – Term policies provide coverage for a specified period, but provide no further benefits when the term expires.  Unlike whole life policies, no buildup of cash value occurs.  If a term policy is not renewed, coverage lapses and no payment will be made if the insured dies.

Industrial – Industrial life is a small-face-amount policy (typically under $1,000) that was sold to low income consumers as a way to cover burial expenses. These types of policies are also known as street, burial or debit insurance. Agents sold these policies door-to-door, collected weekly or monthly premiums and signed a debit card as a receipt of money collected.  While few industrial policies are currently being sold, there are a large number of outstanding industrial policies sold in prior decades that are still outstanding.

Universal – Universal Life is a type of permanent life insurance (like Whole Life) that builds up a cash value.  Interest credited to a Universal Life account is determined by the insurer and is often pegged to a financial index.  The death benefit can be increased (subject to insurability) and decreased without surrendering the policy. A range of premium payments can be made to the policy, from a minimum amount to cover various guarantees the policy may offer to the maximum amount allowed by tax rules. A Universal Life policy may lapse if the cash value or premium payments are not enough to cover the cost of insurance.

Variable – Variable Universal Life Insurance is a type of permanent life insurance that builds up a cash value. In a Variable policy, the cash value can be invested in a wide variety of accounts similar to mutual funds chosen by the policyholder. Premiums can vary from nothing in a given month up to maximums defined by the tax rules. With a variable policy, the death benefit is the face amount plus the buildup of any cash value that occurs.

There are two types of Variable Life: Variable Life and Variable Universal Life. Variable Life is subset of whole life and Variable Universal Life is a subset of universal life. The description of variable premiums is applicable to all kinds of universal life. The last sentence refers to the death benefit. There are two options on any universal (both fixed and variable). Option 1 (sometimes called option A) the face amount is fixed at the initial amount and does not include the cash value. Option 2 (sometimes called option B) is the initial face amount plus the cash value.


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