Insurance policy missing? Collect anyway

By Insure.com

A relative has just died. He had a life insurance policy with you listed as the beneficiary. There's just one problem: You can't find it. And you have no idea which insurance company wrote it.

If you find it in the future, are you still eligible to receive the death benefit?

Hope they paid their insurance bills

If you're a beneficiary and you find a life insurance policy shortly after the insured dies (within six months to a year, for example), claiming the death benefit should be trouble-free.

First, determine if the insured had term or permanent life insurance. If the insured held a term policy, you'll receive the death benefit if he died before the end of the policy term. If he died after the policy expiration date, you'll get nothing.

If the insured had a permanent life policy, you'll receive the money if the death occurred while the policy was "in force," meaning all premium payments were made up until the time of death. If the death was a while ago, you'll receive the benefit with interest from the date of death.

If the policy lapsed -- meaning the insured stopped making premium payments before he died -- there's a chance you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of two options:

• "Extended term": The insurance company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase.

• "Reduced paid up": The insurance company will keep the policy in force permanently, but will reduce the death benefit.

Gerry Brogla, an actuary for State Farm, says that in the majority of the cases at his company, the permanent policy continues as extended term if it lapses. At State Farm, extended term is the default option for most permanent policies.

If the policy lapses, and the extended-term period expires before the insured dies, the policy is worthless and the beneficiary will get nothing. If the insured dies before the extended-term period is up, the beneficiary will receive the death benefit.

If the policy lapsed because the insured died (thus ending premium payments and causing the insurance to be placed in extended-term status), the beneficiary will still collect the full death benefit, regardless of when the extended term was up. The beneficiary always needs to supply the insurance company with a death certificate to verify the date of death.

There is no time limit during which a beneficiary must step forward to collect the money, according to Jack Dolan, a spokesman for the American Council of Life Insurers. "If a person shows up 30 years after (the insured's) death, the company still makes good on it," Dolan assures.

What happens if no one ever reports the death?

If the insured dies and the insurance company does not learn of the death, the policy lapses. Insurance companies will take steps to find out why a policyholder stopped making payments. When an insurance company stops getting payments, it sends letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If that comes up empty, the company will then lapse the policy.

If a beneficiary to a policy never steps forward, it unfortunately means the insured paid money to a policy throughout his life and his beneficiaries never see a penny. This is why it's a good idea to make sure beneficiaries are aware of any life insurance policies you have.

Continued: State may have your money

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