Unclaimed life insurance policies remain with the insurers for a number of years and are then turned over to state unclaimed property agencies, reports the New York Times. Until the beneficiaries are found, the insurers and the states use and profit from the unclaimed money.
According to state laws, insurers have from two to seven years to turn over unclaimed life insurance funds after policies have become inactive, states the New York Times. Sometimes the insurance companies are unaware that the policyholder has died or are unable to locate beneficiaries. Although some companies have teams that attempt to track beneficiaries, others allow the policies to lapse and earn interest with the dormant cash.
Some states in need of funds have become more aggressive in pressing insurers to hand over unclaimed policies within the allotted time, reports USA Today Money. Investigators in California found that a number of insurance companies continued to collect premium payments from the policy's reserves until the funds were depleted rather than notify beneficiaries, states ABC News. In New York, a state investigation into unclaimed life insurance benefits resulted in legislation requiring insurance companies to search databases quarterly, reports the New York State Department of Financial Services. At least $1 billion in lost life insurance benefits remained unclaimed as of 2013, according to Consumer Reports magazine.