What is unclaimed life insurance benefits and how to claim it

Life insurance companies have meticulous processes in place to ensure that the various benefits are paid out in a timely and smooth manner. However, have you thought what happens when a benefit cheque/demand draft sent by the company is returned undelivered as the policyholder no longer works/resides at the mailing address available with the company. Or an instance where the insurance company is unable to make a payment because it is not able to contact the policyholder for the required documents (eg: maturity payout) or rather still where the payment is not made as the insurance company has not been intimated about the happening of an insured event (death).

You may think that these instances are rare, however you would be surprised to note that as on March 31, 2014, the unclaimed benefits with life insurance companies were approximately Rs 5,848 crores.* Yes, you read it right. Read on to know more.

What qualifies as unclaimed benefits?

Some common examples are as under:

·         Refund of excess premium

·         Refund of amount not adjusted against policy

·         Survival benefit payout

·         Maturity benefit payout

·         Amount payable as death claim

When these are not claimed beyond six months from the due date of settlement of the claim amount, they are referred to as unclaimed benefits.

What are the reasons attributed for unclaimed benefits?

Some major contributors are:

1)      Change of address and contact details: Many policyholders do not inform the company when there is a change in their mailing address and/or contact details. Life insurance is a long-term contract. It is possible that the agent who has sold the policy is also no longer associated with the company when the benefits are due. This makes it very difficult for the insurance company to trace such policyholders.

2)      Not keeping track of policy/poor documentation: It is possible that the policyholder may just lose track of the policy after the premium payment term is over. For eg: the premium payment term is 5 years and policy tenure is 20 years. During the premium payment term, the company sends regular alerts by way of premium intimation notices, receipts etc which serve as a reminder of the policy. But after the premium payment term is over the communication from the company may stop and some people busy in their daily schedules and challenges may lose track of the policy and thus not claim the benefits when due. Also, if such a policyholder changes his address and contact details without intimating the insurance company, the company will be helpless till such time the policyholder or his beneficiaries come forward.

In single premium policies, it is easy to lose track unless the policyholder is diligent.

3)      Not informing beneficiary/family: There are cases where the policyholder has not informed his beneficiary/family members about his life insurance policy for some reason (conflicts/suspicions etc). A beneficiary who is not aware of the existence of the policy will naturally not be in a position to make a claim.

What insurance companies are doing to reduce unclaimed benefits?

The companies on the basis of IRDAI instructions are now making all payments for amounts greater than Rs 10,000/- only by way of ECS/NEFT/RTGS to the policyholder’s bank account. For new policies, it is mandatory for insurance companies to record bank details during policy issuance.

How to trace unclaimed insurance benefits?

Life insurance companies now provide details of unclaimed benefits on their website. This feature is available for policies with unclaimed amount more than Rs 1000/-. You can identify the insurance details by entering any two of the details like name of the policyholder, date of birth of policyholder PAN of the policyholder (optional) or policy number(optional).

What happens if the amount is not claimed?

As part of the Finance Act 2015, the government has introduced the Senior Citizens’ Welfare Fund Act, 2015 (SCWF). On July 25, 2017, IRDAI has asked all insurers having unclaimed amounts of policyholders for a period of more than 10 years as on 30th September, 2017 to transfer the same to the Senior Citizens’ Welfare Fund (SCWF) on or before 1st March, 2018. 

Further, as per IRDAI policyholders/ beneficiaries shall be eligible to claim the dues under their policies up to 25 years from the date of transfer of the same to SCWF by the concerned insurer. If no claim is made up to a period of 25 years after transfer to the SCWF, such amounts shall escheat to the Central Government, in terms of Section 126 of the Finance Act, 2015. 

Conclusion

A little diligence on the part of policyholders by updating the insurance company about any changes in their address and contact details and by keeping their beneficiaries informed about the policy can go a long way in addressing the issue of unclaimed benefits. After all, what is the use of having a life insurance policy if you or your loved ones cannot enjoy the benefits.

* As per article titled “Insurance Firms Sit On Rs 6,700 Crore Unclaimed Funds” dated August 22, 2014 in indiaspend.com.