What Happens to Unclaimed Life Insurance Benefits?

For me, life insurance is about having the peace of mind that my kids are financially supported, even if something happens to me. But in my less organized moments, sometimes I worry what would happen if my loved ones forgot to make a claim.

The good news: Even if my insurance paperwork gets lost or my loved ones don’t claim my insurance, the Unclaimed Life Insurance Benefits Act offers ways to get those life insurance benefits to my family. The bad news: It can take years for unclaimed funds to reach their intended recipients. The best news: There’s action I can take right now to make sure my life insurance ends up exactly where it needs to go, quickly.

What Is the Unclaimed Life Insurance Benefits Act?

Life insurance policies promise to provide a death benefit to your beneficiaries if you pass away while you’re covered. Life insurance providers have an ethical and contractual responsibility to honor that commitment.

The Unclaimed Life Insurance Benefits Act was adopted in 2011 by the National Council of Insurance Legislators, and currently 33 states have enacted laws based on the Act. The Act exists to help connect beneficiaries with life insurance benefits, even in cases where the beneficiary didn’t make a claim. The Act outlines processes for insurance providers to follow to locate beneficiaries and how to transfer funds that still don’t get claimed.

In other words, a life insurance provider doesn’t get to keep death benefit money just because no one claims it.

What Happens to Unclaimed Life Insurance Money?

When a policyholder passes away, their beneficiary might not know that they can claim a death benefit. They might not even realize a life insurance policy exists at all. (Complications can also arise if you appoint your minor child as your life insurance beneficiary, especially if they aren't aware of the policy's existence.) Insurance companies know who their customers are, so the Unclaimed Life Insurance Benefits Act puts some of the work on them to track their policyholders. 

The Act states that insurance providers are supposed to search the U.S. Social Security Administration’s Death Master File for policyholders’ names on a semi-annual basis. That includes checking different spellings of names, nicknames or trying typical errors, like a transposed month and day in the birthdate. If they find a match, they have 120 days to wait for beneficiaries to make a claim, and then they need to reach out themselves.

Hopefully, finding the life insurance beneficiary is a simple process, and the insurance company can get the benefit to that person. If the beneficiary has also died, the benefit would typically go to the insured person’s estate and get dealt with either through a will or by going through probate.

If the insurance providers can’t find a way to get the death benefit to a beneficiary, they still don’t get to keep it. State laws can vary, but generally after three years the insurance companies have to turn over the death benefit money to the state treasury where the policyholder lived. The transfer is called escheat.

Once money goes through escheat and reaches the state, beneficiaries can claim the money by going through state resources. In some cases (i.e., if the state’s budget puts enough resources into insurance and unclaimed property matters), the Comptroller’s office may reach out to beneficiaries directly. Other times, it’s faster and more effective for beneficiaries to check their state’s treasury, unclaimed property office or Department of Insurance to locate a policy.

What If There’s No Beneficiary?

If the policy doesn’t have a living beneficiary, the death benefit funds generally go to the policyholder’s estate. If the insured person had a last will and testament, the executor of the will can handle distributing the life insurance benefit. The executor will consider factors like outstanding debts and the people named in the will to determine where the death benefit money goes.

If there is no will, the estate goes into probate, which is the legal process a state follows to settle a deceased person’s estate. Probate law sets an order for which relations would inherit. Generally a married partner is first choice, then children, then other relatives according to a state-determined list. If a will is invalid or contested, the estate can also end up going through probate.

Money that ends up in probate is subject to a lengthy legal process and taxes, so this adds time and cost to the funds you’d like to leave for your family. If life insurance benefits end up in the state treasury, this also adds extensive time before your loved ones can get the money (remember, the death benefit won’t even reach the treasury for years). 

It’s helpful to know that state governments and life insurance companies have measures in place to get unclaimed policies in the right hands, but the better option by far is to get your records in place now so your beneficiaries get their benefits when they need them.

What Beneficiaries Can Do

If you lost a loved one and you can’t access their financial documents or they didn’t keep thorough records, you have several avenues to find out whether they had a life insurance policy:

• Check the National Association of Insurance Commissioners’ Life Policy Locator tool.

• Contact your state insurance department. Several states offer free services to search for missing policies.

• The National Association of Unclaimed Property Administrators (NAUPA) offers a search tool to find unclaimed money.

• MissingMoney.com is endorsed by NAUPA and can also be a resource to look for unclaimed funds in state records.

• If your loved one had a financial advisor, they might have records.

• Check bank or credit card statements for premium payments.

• If you know the life insurance provider but not policy details, contact the insurer to get help locating the policy and making a claim.

What Policyholders Can Do

You can save your loved ones a lot of time, effort and stress by making sure they receive any life insurance benefits in a timely manner.

• If you have a life insurance policy, make sure your policy names your beneficiary (rather than saying “my spouse” or “my children”).

• Include up-to-date contact information for beneficiaries and contingent beneficiaries, if you have them.

• Keep paperwork or electronic files well-labeled so loved ones can find them if needed.

• Tell your beneficiaries you have a policy in place for them (or talk to other responsible adults, like your kids’ intended guardians).

Life insurance money can make a huge difference in your loved ones’ lives — if the benefit reaches them when it needs to. The Unclaimed Life Insurance Benefits Act is a reassuring backup, but the best plan is to make sure your loved ones know how to get the benefits you’ve prepared for them.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.

Information provided is general and educational in nature and is not intended to be, and should not be construed as, financial, legal, or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. We make no warranties with regard to the information or results obtained by its use, and disclaim any liability arising out of your use of, or reliance on, the information.

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