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Making a profit on soldiers' death benefits

The Giant Noodle

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Why are large life insurance companies profiting from billions of dollars they hold on behalf of the families of fallen military service members?
Bloomberg Markets magazine senior writer David Evans posed that question in an article in its September issue. The article, which took a close look at practices at Prudential Financial, has sparked sharp criticism from Cabinet members, reform proposals from U.S. lawmakers, and a fraud investigation by the New York Attorney General.
The U.S. Veterans Affairs Dept. and the National Association of Insurance Commissioners say they are reviewing military life insurance arrangements.

"It's disgraceful on the part of insurance companies," Senator John McCain (R-Ariz.), a onetime prisoner-of-war in Vietnam, said in an interview on Bloomberg Television. "We'll obviously have to be looking into it."
Under scrutiny are so-called retained-asset accounts. More than 100 carriers use the accounts to earn income on $28 billion owed to beneficiaries. New York-based MetLife, the biggest U.S. life insurer, retains about $10 billion and was among the carriers subpoenaed by Andrew Cuomo, the New York Attorney General.
Many life insurance companies suggest to beneficiaries that as an alternative to taking a lump-sum payment of death benefits, they leave the bulk of the policy proceeds with the carriers.
The accounts were set up for beneficiaries such as Cindy Lohman of Great Mills, Md. Her 24-year-old son had been killed by a bomb in Afghanistan. Prudential and the other insurers give the recipients limited checkbook-like access to the funds and pay modest interest.

CONTINUED: http://www.msnbc.msn.com/id/38629691/ns/business-bloomberg_businessweek/
 

MaggieD

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Why are large life insurance companies profiting from billions of dollars they hold on behalf of the families of fallen military service members?
Bloomberg Markets magazine senior writer David Evans posed that question in an article in its September issue. The article, which took a close look at practices at Prudential Financial, has sparked sharp criticism from Cabinet members, reform proposals from U.S. lawmakers, and a fraud investigation by the New York Attorney General.
The U.S. Veterans Affairs Dept. and the National Association of Insurance Commissioners say they are reviewing military life insurance arrangements.

"It's disgraceful on the part of insurance companies," Senator John McCain (R-Ariz.), a onetime prisoner-of-war in Vietnam, said in an interview on Bloomberg Television. "We'll obviously have to be looking into it."
Under scrutiny are so-called retained-asset accounts. More than 100 carriers use the accounts to earn income on $28 billion owed to beneficiaries. New York-based MetLife, the biggest U.S. life insurer, retains about $10 billion and was among the carriers subpoenaed by Andrew Cuomo, the New York Attorney General.
Many life insurance companies suggest to beneficiaries that as an alternative to taking a lump-sum payment of death benefits, they leave the bulk of the policy proceeds with the carriers.
The accounts were set up for beneficiaries such as Cindy Lohman of Great Mills, Md. Her 24-year-old son had been killed by a bomb in Afghanistan. Prudential and the other insurers give the recipients limited checkbook-like access to the funds and pay modest interest.

CONTINUED: http://www.msnbc.msn.com/id/38629691/ns/business-bloomberg_businessweek/
Sorry, another nonissue raised for political hay.

Insurance companies, for years, have elected to pay out benefits into a money market account instead of issuing a check directly to the beneficiary of a death benefit. The way it works is that they pay the money into a money market account -- and then send the beneficiary checks so they can access the money. Accessing the money is as simple as writing a check to deplete the account. Their policies clearly state they are going to do that. At the most, it keeps a beneficiary from their money for one week. At best, it allows a beneficiary to think about what they want to do with the money instead of suddenly receiving a $50,000 check. No harm. No foul.

Another waste of Congress' time that allows to to "think" they're actually doing something.

Don't be misled by this crap.
 

samsmart

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Sorry, another nonissue raised for political hay.

Insurance companies, for years, have elected to pay out benefits into a money market account instead of issuing a check directly to the beneficiary of a death benefit. The way it works is that they pay the money into a money market account -- and then send the beneficiary checks so they can access the money. Accessing the money is as simple as writing a check to deplete the account. Their policies clearly state they are going to do that. At the most, it keeps a beneficiary from their money for one week. At best, it allows a beneficiary to think about what they want to do with the money instead of suddenly receiving a $50,000 check. No harm. No foul.

Another waste of Congress' time that allows to to "think" they're actually doing something.

Don't be misled by this crap.
You're absolutely right. I heard about this on an AM talk show yesterday. It's not really a checking account, like what you get from a bank. Rather, it's a checkbook that allows the beneficiaries access to that account. Also, not all stores will accept these checks. However, as I understand it, a beneficiary can, if they want to, write a check for the full amount of the account and then deposit it into their own checking account.

The AM talk show host, who is a financial advisor, said this wasn't a big deal and that such a practice is even preferable to giving out lump sums to those grieving a loss. He explained that when this happens to any of his clients, he tells all of them that they shouldn't do anything with a life insurance pay out for at least 6 months. People are going to use those 6 months for grieving, and they are in no shape to adequately put any life insurance pay out to good use. Also, they can become targets for financial predators. So having it as a checking account actually protects the beneficiaries until they become of sound mind to use that money when they are emotionally better suited to put it to good use.
 

buck

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the insurance company I work for started these a few years ago, while I was still a claim examiner. Many of the beneficiairies loved them (and made that clear in letters, surveys and phone calls.) since it gave them time to make a decision on what to do with the money. For the people that didn't like them, they could easily just write a check for the full amount of the account and deposit it to their bank (there were a few of these). I know that these accounts paid higher interest then a normal savings account, at least at the time I worked in that department. I'd assume they probably still do.

IMO, Just an attempt to further demonize capitalism in general and insurance companies specifically.
 

apdst

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And insurance company, that's in the insurance business to make a profit. I'm beside myself with outrage!!
 

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And insurance company, that's in the insurance business to make a profit. I'm beside myself with outrage!!
What do you want the companies to do? And isn't that a high risk job? Considering it's Armed Services.... Look if the demand is there, let it continue, but if the majority of people vote it out of their state, then that is fine too. Just have to move to another state that would allow it. And I can actually see why some people choose to have the insurance, sometimes the death benefits from the VA might not be enough for the spouse and if the spouse becomes a single parent, then the extra money could help him or her.

So before anyone starts jumping the gun and claiming something, why not figure out why it is being done. Sound immoral right? But it might make sense for those few.
 

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What do you want the companies to do? And isn't that a high risk job? Considering it's Armed Services.... Look if the demand is there, let it continue, but if the majority of people vote it out of their state, then that is fine too. Just have to move to another state that would allow it. And I can actually see why some people choose to have the insurance, sometimes the death benefits from the VA might not be enough for the spouse and if the spouse becomes a single parent, then the extra money could help him or her.

So before anyone starts jumping the gun and claiming something, why not figure out why it is being done. Sound immoral right? But it might make sense for those few.
I think you failed to pick up on poster's sarcasm, MCS. The rest of your post is....confusing.
 

apdst

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What do you want the companies to do? And isn't that a high risk job? Considering it's Armed Services.... Look if the demand is there, let it continue, but if the majority of people vote it out of their state, then that is fine too. Just have to move to another state that would allow it. And I can actually see why some people choose to have the insurance, sometimes the death benefits from the VA might not be enough for the spouse and if the spouse becomes a single parent, then the extra money could help him or her.

So before anyone starts jumping the gun and claiming something, why not figure out why it is being done. Sound immoral right? But it might make sense for those few.
You totally missed the sarcasm, bro.
 
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MaggieD said:
Sorry, another nonissue raised for political hay.

Insurance companies, for years, have elected to pay out benefits into a money market account instead of issuing a check directly to the beneficiary of a death benefit. The way it works is that they pay the money into a money market account -- and then send the beneficiary checks so they can access the money. Accessing the money is as simple as writing a check to deplete the account. Their policies clearly state they are going to do that. At the most, it keeps a beneficiary from their money for one week. At best, it allows a beneficiary to think about what they want to do with the money instead of suddenly receiving a $50,000 check. No harm. No foul.

Another waste of Congress' time that allows to to "think" they're actually doing something.

Don't be misled by this crap.
The problem is when the insurance company is making a 5% rate of return whereas the beneficiary is only making 0.5% or 1%.
 

buck

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The problem is when the insurance company is making a 5% rate of return whereas the beneficiary is only making 0.5% or 1%.
Why is that a problem? The insurance company is taking the risk of the investment. The beneficiary has zero risk, since it's a fixed account. Since they do the same thing, what's next, preventing banks from making a profit on normal savings accounts issued to soldiers or beneficiaries of soldiers? I know Obama has already demonized profits and banks, but cmon man.
 

Catz Part Deux

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The AM talk show host, who is a financial advisor, said this wasn't a big deal and that such a practice is even preferable to giving out lump sums to those grieving a loss. He explained that when this happens to any of his clients, he tells all of them that they shouldn't do anything with a life insurance pay out for at least 6 months. People are going to use those 6 months for grieving, and they are in no shape to adequately put any life insurance pay out to good use. Also, they can become targets for financial predators. So having it as a checking account actually protects the beneficiaries until they become of sound mind to use that money when they are emotionally better suited to put it to good use.
I have to agree with this point. My daughter's boyfriend's father died last fall. His widow received a lump sum insurance benefit of $2,000,000. She has blown through that money like nobody's business. Within 2 months of his death in October, she'd started remodeling her kitchen, taken her entire family on an expensive caribbean cruise, put a new roof on her house, handed out thousands of dollars to the kids, and basically has blown through about 1/4 of the settlement in the last year. I'm really, actually, kind of appalled by watching it, because I'm the kind of girl who pinches pennies until they squeal.

My sister-in-law did the same thing with her husband's insurance settlement after he died from cancer, and she now has zero to retire on, aside from social security.

If this had been handled as above, it's likely that she might not have spent money like she did.
 

MaggieD

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The problem is when the insurance company is making a 5% rate of return whereas the beneficiary is only making 0.5% or 1%.
That doesn't have to happen for more than ten days. People are free to write one big check and clear the account to zero. That way, they can find another place to put the money that'll earn .5 or 1%. (Interest rates suck for our money are in the crapper anyway.)
 

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Why are large life insurance companies profiting from billions of dollars they hold on behalf of the families of fallen military service members?
Bloomberg Markets magazine senior writer David Evans posed that question in an article in its September issue. The article, which took a close look at practices at Prudential Financial, has sparked sharp criticism from Cabinet members, reform proposals from U.S. lawmakers, and a fraud investigation by the New York Attorney General.
The U.S. Veterans Affairs Dept. and the National Association of Insurance Commissioners say they are reviewing military life insurance arrangements.

"It's disgraceful on the part of insurance companies," Senator John McCain (R-Ariz.), a onetime prisoner-of-war in Vietnam, said in an interview on Bloomberg Television. "We'll obviously have to be looking into it."
Under scrutiny are so-called retained-asset accounts. More than 100 carriers use the accounts to earn income on $28 billion owed to beneficiaries. New York-based MetLife, the biggest U.S. life insurer, retains about $10 billion and was among the carriers subpoenaed by Andrew Cuomo, the New York Attorney General.
Many life insurance companies suggest to beneficiaries that as an alternative to taking a lump-sum payment of death benefits, they leave the bulk of the policy proceeds with the carriers.
The accounts were set up for beneficiaries such as Cindy Lohman of Great Mills, Md. Her 24-year-old son had been killed by a bomb in Afghanistan. Prudential and the other insurers give the recipients limited checkbook-like access to the funds and pay modest interest.

CONTINUED: http://www.msnbc.msn.com/id/38629691/ns/business-bloomberg_businessweek/
Back to the original post. What Congress and AG's throughout the country should be investigating is the money that insurance companies are holding onto because no one claimed it. That amounts to hundreds of billions of dollars. If Uncle Henry dies, and his family doesn't know he has an insurance police with MetLife (example), they can't ever claim it. And MetLife just keeps the money. Insurance companies never go looking for police holders -- even the ones who'd be 130 years old by now. They just confiscate the money and build huge buildings. ;-)
 

TacticalEvilDan

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Sorry, another nonissue raised for political hay.
Damn skippy.

That said, were such a settlement put into my hands, I'd write a check for the whole amount and immediately turn into a pile of 1- or 2-year CDs.

That way I'd get a better rate of return with no risk, and I'd have a chance to let my head clear before I had access to the money.
 

donsutherland1

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As long as there is sufficient disclosure to allow for a reasonable person to make an informed decision, this isn't technically a problem. Based strictly on the article, I cannot conclude that there is actually a problem. It appears that the companies are earning some interest income on money that is held on behalf of the beneficiaries (the same happens at any financial institution). The article does not suggest that the insurance companies are earning income on funds on which they have not made timely payment to beneficiaries so as to earn interest income over a longer period than would otherwise be the case.
 

buck

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Back to the original post. What Congress and AG's throughout the country should be investigating is the money that insurance companies are holding onto because no one claimed it. That amounts to hundreds of billions of dollars. If Uncle Henry dies, and his family doesn't know he has an insurance police with MetLife (example), they can't ever claim it. And MetLife just keeps the money. Insurance companies never go looking for police holders -- even the ones who'd be 130 years old by now. They just confiscate the money and build huge buildings. ;-)
A couple of things here. First, if an insurance company doesn't know that someone is dead, I don't know how you could possibly hold them responsibile for the mistake of the insured in not informing his family of a policy or having some type of documentation of this policy's existence. The policy will terminate due to non-payment of funds, which is slightly different then how you picture it.

Second, if an insurance company is notified of a death, but no beneficiary comes forward (or they can't locate one), the proceeds are actually paid to the insured's state's unclaimed benefits fund after a set time, which amounts to a slush fund for the state.

Lastly, the fact that some policies terminate prior to death or after death without an insurance company being notified (which to the insurance company is the same as terminated prior to death) is actually calculated by the actuaries to set the price of the coverage. Premium levels are approved (and occasionally reviewed) by the state's DOI and will have to be adjusted if an insurance company has better than expected claims experience - which happens at times. So, i'm not sure the benefit to the insurance company is as large as you think.
 
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MaggieD

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A couple of things here. First, if an insurance company doesn't know that someone is dead, I don't know how you could possibly hold them responsibile for the mistake of the insured in not informing his family of a policy or having some type of documentation of this policy's existence. The policy will terminate due to non-payment of funds, which is slightly different then how you picture it.
This is a large profit center for insurance companies. Policies expire that were good as gold until the insured died and payments stopped. Those policies just simply expire and the company saves tens of millions of dollars in premiums and cash value promised. According to some estimates, 20% of all insurance policies are just lost in the cracks of the decedent's file cabinet or desk drawer.

Second, if an insurance company is notified of a death, but no beneficiary comes forward (or they can't locate one), the proceeds are actually paid to the insured's state's unclaimed benefits fund after a set time, which amounts to a slush fund for the state.
One question would be, "What's the set time?" Link? Second question would be, "How is an insurance company notified of a death?" I think this applies when a family has contacted the insurance company and doesn't know how to contact the beneficiary. Do they check the Social Security database every year? I think we both know that doesn't happen. So, much of this money winds up in the insurance company's slush fund. Which is a great word for it. Thank you.

Lastly, the fact that some policies terminate prior to death or after death without an insurance company being notified (which to the insurance company is the same as terminated prior to death) is actually calculated by the actuaries to set the price of the coverage. Premium levels are approved (and occasionally reviewed) by the state's DOI and will have to be adjusted if an insurance company has better than expected claims experience - which happens at times. So, i'm not sure the benefit to the insurance company is as large as you think.
Please supply a link showing that life insurance company premiums are okayed by the DOI. Even if this is true, rightful beneficiaries don't get the money.
 

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This is a large profit center for insurance companies. Policies expire that were good as gold until the insured died and payments stopped. Those policies just simply expire and the company saves tens of millions of dollars in premiums and cash value promised. According to some estimates, 20% of all insurance policies are just lost in the cracks of the decedent's file cabinet or desk drawer.
I doubt that percentage. But, I know it happens. We used to get claims from people that found policy information in the decesased's files a year + after the death. In some cases those policies had canceled prior to death, in other cases they were payable claims. I still don't have any clue how you can blame an insurance company for that, though. An insurance company can't be held responsible for what people do with the policy after they purchase it, wether it be not telling others about it or placing it with the rest of their important papers.

One question would be, "What's the set time?" Link? Second question would be, "How is an insurance company notified of a death?" I think this applies when a family has contacted the insurance company and doesn't know how to contact the beneficiary. Do they check the Social Security database every year? I think we both know that doesn't happen. So, much of this money winds up in the insurance company's slush fund. Which is a great word for it. Thank you.
The time limit is set by the states. I really can't recall what the time limit was, but different states did have different time limits. Contrary to what we "both know" We actually did check to see if we could locate a beneficiary four times per year, every 90 days (this was required by the states, I believe). We tried our best to not have to forward it to the state, since it was nearly impossible to get back if we ever had to pay the claim at a later date. That money does not end up in the insurance company's slush fund. Anyway, I don't have a link, and dont care to hunt it down.
 
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MaggieD

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I doubt that percentage. But, I know it happens. We used to get claims from people that found policy information in the decesased's files a year + after the death. In some cases those policies had canceled prior to death, in other cases they were payable claims. I still don't have any clue how you can blame an insurance company for that, though. An insurance company can't be held responsible for what people do with the policy after they purchase it, wether it be not telling others about it or placing it with the rest of their important papers.
Yeah, I saw that 20% claim on an EHow link. Not credible, IMO. Can't find anything else. I'm sure it's not something insurance companies go out of their way to make public. As to how I can blame insurance companies, every state has an unclaimed property website. Why not insurance companies? I just handled the estate of an 83-year-old family friend who had literally thousands of paperes strewn everywhere in her house. Did we find all of her insurance policies? I doubt it. Was it her fault? Yeah, I guess it was. Should insurance companies be allowed to profit from it? No.

The time limit is set by the states. I really can't recall what the time limit was, but different states did have different time limits. Contrary to what we "both know" We actually did check to see if we could locate a beneficiary four times per year, every 90 days (this was required by the states, I believe). We tried our best to not have to forward it to the state, since it was nearly impossible to get back if we ever had to pay the claim at a later date. That money does not end up in the insurance company's slush fund. Anyway, I don't have a link, and dont care to hunt it down.
I did see that, when the 'average life span' has been exceeded, these assets are turned over to the state. It was a credible link. I didn't grab it. So you're right about those policies going into a state slush fund after a while. Again, an online database would stop THAT. There's a reason insurance companies don't do it, don't you think? This, of course, doesn't account for the policies where premiums just stop getting paid.

Don't get me wrong. I'm not saying insurance companies are villains. But if any congressional investigation was held, I'd think investigating THIS makes a whooole more sense than investigating paying death benefits into a money market account.
 

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Yeah, I saw that 20% claim on an EHow link. Not credible, IMO. Can't find anything else. I'm sure it's not something insurance companies go out of their way to make public. As to how I can blame insurance companies, every state has an unclaimed property website. Why not insurance companies? I just handled the estate of an 83-year-old family friend who had literally thousands of paperes strewn everywhere in her house. Did we find all of her insurance policies? I doubt it. Was it her fault? Yeah, I guess it was. Should insurance companies be allowed to profit from it? No.
How would you suggest that an insurance company make these numbers public? To the insurance company it's just a terminated policy, and they already make public the number of policies that are canceled. It's how investors can review churn and retention. I really can't figure out how you envision the online database. I guess it would have to contain every policy that was ever terminated with an insurance company...

I did see that, when the 'average life span' has been exceeded, these assets are turned over to the state. It was a credible link. I didn't grab it. So you're right about those policies going into a state slush fund after a while. Again, an online database would stop THAT. There's a reason insurance companies don't do it, don't you think? This, of course, doesn't account for the policies where premiums just stop getting paid.
I dunno. Why do insurance companies do that? Do you think it's somehow cheaper to pay those benefits to the state government rather than the insured? I have first hand experience of how much work an insurance company engages in to track down a beneficiary prior to sending benefits to the state. Even before we forwarded the funds, we always sent a letter to all the possible addresses we had on file to let them know these funds were going ot the state unless we heard back shortly. That simple threat would finally get beneficiaries to come forward. In some cases it was tax issues that prevented them from coming forward, in others it was family rivalries.
 

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How would you suggest that an insurance company make these numbers public? To the insurance company it's just a terminated policy, and they already make public the number of policies that are canceled. It's how investors can review churn and retention. I really can't figure out how you envision the online database. I guess it would have to contain every policy that was ever terminated with an insurance company...

Maybe it should be a "backwards" database. I enter a name and social security number into a master database and the insurance companies search for matching records. MaggieD 333-33-3333 comes back with four hits -- Prudential; Nationwide; MetLife; Aetna. Click on links for more information. They're already in computers. Couldn't be that hard to do. Plus, without the social security number, information would remain confidential.

I dunno. Why do insurance companies do that? Do you think it's somehow cheaper to pay those benefits to the state government rather than the insured? I have first hand experience of how much work an insurance company engages in to track down a beneficiary prior to sending benefits to the state. Even before we forwarded the funds, we always sent a letter to all the possible addresses we had on file to let them know these funds were going ot the state unless we heard back shortly. That simple threat would finally get beneficiaries to come forward. In some cases it was tax issues that prevented them from coming forward, in others it was family rivalries.
Frankly, I think that tracking down the beneficiary slushes aren't the same as dropped policies and not even knowing the person is dead. Much smaller problem.
 

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Maybe it should be a "backwards" database. I enter a name and social security number into a master database and the insurance companies search for matching records. MaggieD 333-33-3333 comes back with four hits -- Prudential; Nationwide; MetLife; Aetna. Click on links for more information. They're already in computers. Couldn't be that hard to do. Plus, without the social security number, information would remain confidential.
Could you not just do the same thing by calling Prudential, Aetna, JNL etc? Give them the name and SSN and find out if they have a policy for the deceased? I think it's both safer (hackers just got information on 200mil facebook users) for everyone and much less likely to result in providing a competing insurance company with information on another company's clients. Althogh it is a bit more time consuming. I highly doubt you'll be having insurance companies providing everyone with that level of detail on every client that has terminated a policy.
 
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Could you not just do the same thing by calling Prudential, Aetna, JNL etc? Give them the name and SSN and find out if they have a policy for the deceased? I think it's both safer (hackers just got information on 200mil facebook users) for everyone and much less likely to result in providing a competing insurance company with information on another company's clients. Althogh it is a bit more time consuming. I highly doubt you'll be having insurance companies providing everyone with that level of detail on every client that has terminated a policy.
No. That's the ridiculous part. I know this because I just faced it. For one thing, you'd have to call allll of the insurance companies. But even, as was the case with this lady that passed, if you KNOW there's a policy, unless you are the beneficiary, they will give you absolutely no information. Even with death certificate in hand.
 

buck

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No. That's the ridiculous part. I know this because I just faced it. For one thing, you'd have to call allll of the insurance companies. But even, as was the case with this lady that passed, if you KNOW there's a policy, unless you are the beneficiary, they will give you absolutely no information. Even with death certificate in hand.
That's true. The reason insurance companies won't release information to you, is because you are not a party to the contract and the insurance company is prohibited by law from releasing information (privacy concerns and potential fraud). In fact, auditors would occasionally call pretending to be someone in order to obtain information from the company they were not entitled to.

Anyway, all you need to do is fax the death certificate in. If they have a policy for the client, they will attempt to locate the beneficiary. Anyway, it sounds like you're issue is more with the government than the insurance company. I imagine they would face the same restrictions with the database you previously suggested. If you are positive the lady had a policy with that company, you can even fax the death certificate with a letter to your state's DOI, they will forward it to the insurance company.
 
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MaggieD

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That's true. The reason insurance companies won't release information to you, is because you are not a party to the contract and the insurance company is prohibited by law from releasing information (privacy concerns and potential fraud). In fact, auditors would occasionally call pretending to be someone in order to obtain information from the company they were not entitled to.

Anyway, all you need to do is fax the death certificate in. If they have a policy for the client, they will attempt to locate the beneficiary. Anyway, it sounds like you're issue is more with the government than the insurance company. I imagine they would face the same restrictions with the database you previously suggested. If you are positive the lady had a policy with that company, you can even fax the death certificate with a letter to your state's DOI, they will forward it to the insurance company.
Thanks, Buck. Eventually, "up the line" on the telephone chain, I was able to get the bennie's name. (I'd already mailed them the death certificate and the small estate affidavit. That wasn't good enough because the estate wasn't the bennie.) The bennie named had died. Never would have found him -- been dead for 20 years.
 
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