Lawsuits from the Minnesota Attorney General should serve as an important reminder to anyone who has a life insurance policy as part of their estate plan.
Life insurance policies play a pivotal role in many estate plans. They are often used to provide needed cash to family members to bridge the gap between when the policy holder passes away and when the estate is settled. They can also be used to help equalize estate distributions between heirs when other assets are difficult to divide.
What if the life insurance company does not pay beneficiaries? In that case the goals of the estate plan are not met. It happens more than most people think.
In fact, this happens so often that the state of Minnesota has sued several life insurance companies and recovered approximately $200 million as CBS Minnesota reports in "State Suing Life Insurance Companies For Not Paying Beneficiaries."
The biggest source of the problem? Beneficiaries of the life insurance policies do not know that they are life insurance beneficiaries. As a result, they do not file a claim.
Even if the companies know that the policy holder has passed away, they do not seek out the beneficiary and pay on the policy. In most cases they are not legally required to do so. They can keep the money and use it for their own purposes until a claim is filed.
The lesson to be learned from this is that when life insurance is a part of your estate plan, then you need to ensure that the beneficiaries are aware of the policy and know to file a claim when you pass away. You do not have to tell them before you pass away, but someone reliable should know at least where to find your policy documents at the appropriate time.
Reference: CBS Minnesota (May 18, 2016) "State Suing Life Insurance Companies For Not Paying Beneficiaries."
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