Dead or Alive? The Law, Policy, and Market Effects of Legislation on Unclaimed Life Insurance Benefits

Abstract

A wave of multi-state audits on the insurance industry’s use of the Social Security Administration’s Death Master File (DMF) stirred national controversy over the status of unclaimed life insurance proceeds. Multi-state investigations uncovered “asymmetric” use of the DMF among many large insurance companies. Accusations of unethical behavior led to numerous settlement agreements between state regulators and insurers. Payouts and fines stemming from these settlements already number in the billions of dollars.

Legislative responses are also underway. Some states have adopted — and others are considering — legislation requiring life insurers to search the DMF to identify and pay (or eascheat) unclaimed death benefits. Currently, legislative responses vary among the states, underscoring the longstanding tension between uniformity and state-centric regulation of insurance in the United States. Some states have imposed DMF search requirements on a prospective basis. Others have attempted to apply such requirements on a retroactive basis, affecting both new and existing policies.

Emerging legislation on unclaimed life insurance has significant implications for consumers, insurance markets, and even state finances. This Article focuses on the crucial question of retroactive versus prospective applicability of legislation on unclaimed life insurance benefits. In considering the financial implications and legal dimensions of this question, this Article concludes in favor of prospective applicability. Though presumably well intentioned, the downsides of retroactive legislation on unclaimed life insurance benefits outweigh the upsides.