Why are there Unclaimed Life Insurance Benefits?
Did you know that one out of every six hundred people in the United States is due unclaimed benefits from a life insurance policy, but are not aware of it? In fact, millions of dollars in life insurance benefits go unclaimed each year. How can this be? Why wouldn’t the beneficiary of the account claim the money that rightfully belongs to them? The answer is simple. They do not know the funds exist. Many policies are purchased years and years before the insured dies, and the beneficiary either forgets they were named the beneficiary or was never made aware of it in the first place. To make matters more complicated, the insurance company may be negligent in finding or unable to find, the recipient of the funds. Sometimes, the insurance company may not even be aware that the policyholder has passed away.
What Happens to Unclaimed Life Insurance Benefits?
If the insurance company is aware of the policyholder’s death and beneficiary has not been located within a certain period of time, the funds are to be turned over to the state. This is usually within a few years of the insured’s death.
How to Collect Unclaimed Life Insurance Benefits
If you know where the policy is held, you can contact the insurance company. If you are the beneficiary, you will need to verify your identity, before receiving any information or collecting the life insurance benefits.
If the insured died more than a few years ago, the benefits may have been turned over to the unclaimed property department of the state where the policy was purchased. You can check either website of the National Association of Unclaimed Property Administrators at unclaimed.org or missingmoney.com. If either of these websites shows you as the beneficiary, you will be supplied with a claim form. You will need to provide them with whatever required documentation they request. You may also be required to provide a death certificate, which you can obtain a copy of at vitalcheck.com, or the vital records department of the deceased’s state.
If you are unsure if a life insurance policy even exists, begin by searching the deceased’s paperwork for evidence such as:
Correspondence from the insurance company
Canceled checks or bank account statements – for policy premium payments
Old tax returns – look for possible interest that might have been paid from the policy
Recent mail for premium due notices – these may have been sent since the loved one’s passing
You can also check with the insured’s employer or union. If the policy was through work or union membership, you may be able to find out through one of these sources what insurance company holds the policy.
Is the Beneficiary Required to Pay Taxes Once the Benefits Are Claimed?
You are not generally required to pay tax on life insurance proceeds unless you receive more than the original policy amount. For instance, if interest was earned through premium payments and added to the original benefit amount, a portion of the proceeds may be taxable. The tax is usually figured based on how the money is paid out to the beneficiary, whether as a lump sum or as instalment payments.
Any taxes owed on the life insurance proceeds are due the year the benefit is recognized.