The dirty secret of life insurance
You buy a life insurance policy and you name your spouse or children as beneficiaries. You think you’ve finally protected your family and achieved peace of mind – you believe your family is secure should anything happen to you. They are supposed to receive the death benefit of the insurance protection. They will be able to maintain their standard of living, thanks to the financial protection of the insurance.
You couldn’t be more wrong.
You might be unpleasantly surprised to learn that life insurance companies don’t have the legal obligation to proactively notify your beneficiaries!
Insurance companies don’t have the legal obligation to proactively notify your beneficiaries if anything were to happen to you!
Yes, you read that correctly – they will know that something has happened to you, they will know who your beneficiaries are, appointed in the policy by you, but they are not required to notify them! So your spouse or children might never become aware of that policy and benefit from it.
You might think that this is the exception and that it won’t happen to you. Did the insurance company that provided your life insurance tell you how they would identify and notify your heirs if the insurance was triggered?
You might be surprised that, for most insurance companies, the answers to the above questions are somewhat negative. And the reason is that they aim primarily to protect the asset value but not the asset ownership, or that they are not legally required to do so. But the blunt answer is they simply don’t have any incentive to notify your heirs. It’s way better for them to have the money stay with them.
Not notifying the heirs is not the exception; judging by the size of the problem, it is the norm. Let’s see how big the problem is.
How big is the problem?
The famous Californian attorney James L. Cunningham, Jr. puts it well in his book Savvy Estate Planning: “According to CBS News, about $1 billion in life insurance claims goes unpaid every year. That’s because even though the insurance company knows you are dead, they have no affirmative obligation to reach out and pay the money to your beneficiaries. The beneficiary has to submit a claim, but if the beneficiary doesn’t know about the policy, that claim will never be submitted. The insurance company knows you have passed, they know who the beneficiary is, but if no one steps forward, the company holds on to the money. I find this shocking.”
Let’s see some more sources:
The New York Times: “There Are Billions in Unclaimed Assets Out There. Some Could Be Yours. Government agencies have tens of billions of dollars’ worth of bank accounts, insurance policies and other forgotten holdings.”
CNN: “$58 billion unclaimed: Is some of it yours?” It continues: “Unclaimed property comes from a variety of sources, including abandoned bank accounts and stock holdings, unclaimed life insurance payouts and forgotten pension benefits.”
$1 billion per year in the US alone and only for life insurances. How big is the problem of protecting all types of assets from these risks? As you can see, it’s huge. As of 2020, so-called unclaimed assets approach $100B just in the US. Latest reports for the UK show £77B. Globally, we are talking about trillions of dollars. And the upward trend is alarming: a $5B increase per year in the USA alone.
Is this problem specific to life insurance?
No. This problem relates to most asset types, not only life insurance. Did your bank tell you how they would identify and notify your heirs if you abandoned your bank account? Did the asset management company tell you how they would notify your heirs if anything happened to you? Did they ask you to nominate heirs at all?
The reality is that most asset management tools aim at protecting the value of the assets which they hold but not their ownership. Traditional asset protection tools such as trusts and insurances focus on protecting the value of the asset but not the ownership. For example, insuring real estate protects against climate disasters. An asset protection trust can protect an asset’s value. But all these asset protection tools do not guarantee or target proactively protection of asset ownership.
You would certainly not be happy knowing that your asset had preserved its value but was not in the hands of your family. And as we saw, we are talking of billions of dollars just in the US. Per year!
Digital inheritance to protect your life insurance?
With the digital inheritance services, you can protect your assets against unforeseen events and ensure that your family is secure. You can connect your preferred beneficiary with your preferred assets, and they will be notified at the time you choose – while ensuring they get the support they need in the process of claiming.
With digital inheritance services, such as DGLegacy, you can protect all types of assets. It is also easy to keep your list of assets and beneficiaries up to date.
This way, in the event of anything unforeseen happening to you, your loved ones:
- are aware of your assets
- can identify and locate your assets
- can minimize the chance of unclaimed assets.