Over the past few years, states across the country have undertaken efforts to more closely examine how life insurers distribute death benefits. Many of these examinations found deficiencies in processes that led to billions of dollars not getting to the people that should have received them, and as such a number of states have passed laws requiring better systems for checking if a policyholder has passed away, and tracking down their stated beneficiaries.
This is certainly the case in Illinois, where both houses of the state's legislature recently passed a bill to address these issues after an investigation found more than $550 million in unpaid benefits, according to a report from Gazette Chicago. The bill now only awaits the signature of Governor Bruce Rauner before it becomes law. At this time, the governor is still examining the issue.
"I wanted to do everything I could to fix this problem and make sure that everyone in Illinois receives the benefits to which they are entitled," state treasurer Mike Frerichs, who started the investigation, told the newspaper. "When people purchase a life insurance policy, they assume their loved ones will be paid out soon after their death."
A big issue
The life insurance industry is big business in the Land of Lincoln, as policy providers paid out some $4 billion in benefits to Illinois residents alone in 2014, the latest year for which complete data was available, the report said. However, the Illinois investigation found that these companies actually owed 2.75 percent more than that, totaling $110 million in unpaid benefits.
Those in the insurance industry acknowledge the issue but point out that the vast majority of benefits are paid as soon as possible, and that insurers aren't acting maliciously when they're not, the report said. Often, these issues arise because beneficiaries can be difficult to track down, or they may not have even known about the policy in the first place.
Meanwhile, though, the number of states that have passed these kinds of laws is still somewhat small, but it's expected to grow quickly, according to a report from The Associated Press. The American Council of Life Insurers, an industry group including some of the nation's largest players in the industry, is now pushing for recommendations made by the National Conference of Insurance Legislators to become the "national standard" within the next year-plus. So far, most of the life insurance benefits laws of this type passed nationwide already follow the recommended framework, giving insurers greater clarity when it comes to how they should proceed from one state to the next.
In the meantime, life insurers themselves may want to do a little more housekeeping to make sure they're prepared for whatever laws are passed in this regard in the next few years. Doing so can help to avoid regulatory entanglements, as well as improve relationships with policyholders. The more that can be done to get out in front of any regulatory requirements being placed on them, the better off companies are going to be.