The California Controller has been investigating John Hancock, along with 21 other life insurance companies, with respect to the practice of withholding life insurance death benefits from beneficiaries by not investigating if policyholders had become deceased.
The Controller has reached its first settlement in the investigation with John Hancock, which has denied the charges.
At issue is the failure of life insurance companies to take a proactive approach to determine if policyholders have passed away. A California law requires that when there is no customer contact for 3 years, the customer’s property must be delivered to the state, which can then route unclaimed property to its owners.
For instance, if a life insurance policyholder dies and her remaining family members are unaware of the existence of the policy, the proceeds should eventually be delivered by the insurer to the state, which can then distribute them.
According to the controller, life insurance companies rarely contact the controller as they are supposed to. In fact, the controller alleged that John Hancock has a practice of avoiding paying death benefits, instead collecting premiums from the accrued cash value of a policy, even when the premium payments stop coming from the insured. As a result, the insurers deplete the cash value of the policy and do not have to pay a death benefit.
Now, John Hancock is going to begin searching public databases to find out of its customers have died, rather than simply relying on beneficiaries to submit death claims.
Florida authorities are also going to start examining this practice by life insurance companies.
You can read an article at the Wall Street Journal that reported on this issue.