Choosing the right life insurance policy can be tricky. However, sometimes even doing your research and paying a significant amount towards your life insurance does not mean that your beneficiaries will benefit in the end.
This lesson became a harsh reality for many beneficiaries of AIG’s life insurance policies in California.
An audit conducted by California Controller John Chiang reveals that AIG fails to “pay death benefits to the beneficiaries of life insurance policies, despite having access to federal records indicating that policyholders had died, or direct confirmation of relatives of the deceased.” AIG not only fails to pay these policies but also continues to collect the premium payments by “drawing down the policies’ cash reserves.” Once there are no more cash reserves to withdraw, AIG would cancel the policy unbeknownst to its beneficiaries.
Due to this investigation, AIG has reached an agreement to pay an estimated $25 to $30 million to California beneficiaries as well as a settlement amount of $11 million to all states. The agreed amount of $25 to $30 million will be used to distribute funds of an estimated 10 million California life insurance policies that are past due. California’s share of the settlement amount is an estimated $1 million. AIG will also undergo changes in their business policies so that it will pay out these policies as well as annuity and retained asset account benefits to its beneficiaries as soon as they are eligible. One of these changes will be a policy to require AIG insurance regulators to check the Social Security Administration’s Death Master File to find out if any of their policyholders have died.
This case is a prime example of how ineffective a life insurance policy can be on its own. Imagine thousands of beneficiaries left without any money at the death of their loved ones, money that they were owed–suffering financial burden because this was the only inheritance they received.
If you do decide to take a life insurance policy, then consider all of the options that are available to you.
You should buy enough coverage and find a policy that matches your needs. It is never too early to buy life insurance, so if you should invest in a policy if you are financially capable of investing. Also, if you do decide to purchase a life insurance policy, then you should consider an irrevocable life insurance trust.
This type of trust can help you avoid gift and estate taxes, ensuring that your beneficiaries are paid the full amount of your insurance proceeds. If you would like to find out more about estate planning, contact us today. We also encourage you to find out more about life insurance online.
If you are a provider for your family, consider a consultation with an experienced attorney at our office to discuss estate planning. Taking out a life insurance policy can be beneficial, but it may not be enough.
You should find out more information about wills, trusts, and other documents that could help your family if you were no longer around to help them.