Life Insurance Payout: Are Public Records Accessible?

When a life insurance policy pays out a death benefit, it becomes part of the public record unless certain steps are taken to keep the information private. To keep the death benefit payout private, one can use a trust, choose a private placement policy, or consider a life settlement. However, if one wishes to find out about a life insurance payout, there are several ways to do so. One can search through the deceased's personal belongings, do an online search, contact the Insurance Commissioner's office in one's state, or use a life insurance policy locator tool.

Using a trust to keep the payout private

While life insurance payouts are not automatically public information, they can become public record in certain circumstances. For example, if the payout is part of a deceased person's estate, and the estate goes through probate court, the details of the payout may become public. Additionally, if the beneficiary of the life insurance policy faces legal action or files for bankruptcy, the payout amount may be revealed through court records.

If you want to keep the payout amount private, one option is to use a trust. A trust is a legal entity that holds and manages assets on behalf of beneficiaries. Here are some key points about using a trust to keep a life insurance payout private:

• Benefits of a trust: Placing your life insurance policy in a trust can offer several benefits, including privacy, protection of assets, and control over distributions. It can also help mitigate estate taxes and eliminate gift taxes.
• Types of trusts: There are two basic types of trusts: irrevocable and revocable. An irrevocable trust cannot be modified or cancelled once established, while a revocable trust offers more flexibility and control.
• Choosing the right type of trust: The type of trust you choose depends on your specific needs and circumstances. If you have a high net worth, an irrevocable trust may be more suitable as it can provide tax advantages. On the other hand, if you value flexibility and control, a revocable trust may be preferable.
• Setting up a trust: Setting up a trust can be complex, and it's important to seek the help of an experienced legal or financial professional. They can guide you through the process, ensure the trust is structured correctly, and help you understand any tax implications.
• Funding the trust: To fund a life insurance trust, you can transfer ownership of your life insurance policy to the trust or purchase a new policy with the trust as the owner and beneficiary. The trust can also be funded with other assets such as cash, stocks, or bonds.
• Privacy considerations: Using a trust can help keep the payout amount private, especially if you have concerns about beneficiary privacy or potential creditor issues. It is important to note that while a trust can provide privacy, it may not completely shield the payout from public knowledge, especially if the trust is involved in legal proceedings.

Private placement life insurance (PPLI)

PPLI combines the financial advantages of highly taxed hedge funds and similar investments with the tax advantages of life insurance. The insured person can generally access most of the funds, tax-free, through policy withdrawals and loans. While there are insurance and administrative costs associated with a life insurance contract, the tax savings and death benefits outweigh these costs.

PPLI is structured like a variable universal life insurance policy, allowing flexible premiums. Policyholders can pay as much or as little as they like, whenever they prefer. To keep the policy active, the owner must pay enough premiums to maintain a cash value that covers the cost of insurance. If the cash value reaches zero, the policy will lapse.

PPLI provides several benefits in addition to tax advantages, including lower commissions, no surrender charges, tax exemption on phantom income, easier tax compliance, and creditor protection. It also offers increased privacy and freedom regarding investments, as they are made in the name of the insurer rather than the individual.

PPLI is a powerful tool for wealth planning, allowing high-net-worth individuals and families to tailor their investment strategies while minimising tax obligations.

Life settlement

A life settlement is the sale of an existing life insurance policy to a third-party investor. Typically, the seller is a senior citizen who owns a life insurance policy worth $100,000 or more and is over the age of 65. The third-party investor becomes the new owner of the policy, paying the monthly premiums and receiving the full benefit of the policy when the insured dies.

The transaction may be structured as a death benefit transaction, in which the policyholder receives cash payments and their beneficiaries also receive a payment after the death of the insured. After the transaction, the policyholder is no longer obligated to pay premiums.

The amount received by the seller depends on a range of factors, including their age, health, and policy terms and conditions. The lump-sum payment is generally more than the policy's cash surrender value but less than the net death benefit.

In the US, the sale of life insurance policies was legitimized by the Grigsby v. Russell case in 1911, which established that a life insurance policy was private property that could be assigned at the owner's will. Despite this, life settlements remained uncommon until the 1980s, when the AIDS epidemic created a market for them. As of 2020, there were 3,241 policies purchased in the secondary market, with a total face value of $4.6 billion.

There are several factors to consider when deciding whether to sell a life insurance policy, including the ongoing life insurance needs of the seller, the potential impact on their finances and their survivors, and the difficulty in determining a fair price.

NAIC life insurance policy locator tools

In the United States, the National Association of Insurance Commissioners (NAIC) provides a Life Insurance Policy Locator (LIPL) service. This free online tool helps consumers find their deceased loved ones' lost life insurance policies and annuity contracts.

To use the NAIC Life Insurance Policy Locator, follow these steps:

• Go to the NAIC website (naic.org) in your web browser.
• Hover over "Consumer" and click on "Life Insurance Policy Locator" under "Tools".
• Review the welcome page and agree to the terms of use.
• Enter your name, mailing address, and email address.
• Submit a search request by entering the deceased's information from their death certificate, including their Social Security number, veteran status, and your relationship to the deceased.
• Click the submit button.

Once you have submitted your request, it will be stored in a secure, encrypted database. Participating life insurance and annuity companies can access this information through a secure portal. If a policy is found and you are the beneficiary, the company will contact you directly. If no policy is found or you are not the beneficiary, you will not be contacted. Please note that the NAIC does not have any policy or beneficiary information.

In addition to the NAIC Life Insurance Policy Locator, there are other tools and resources available to help locate unclaimed life insurance policies, such as state-specific resources and private companies that offer search services for a fee.

Contacting the insurance company

Gather Necessary Information:

Before reaching out, ensure you have all the required information readily available. This includes the policy number, if known, as well as your identification documents such as a driver's license or Social Security number. Having these details on hand will streamline the process and facilitate a quicker response from the insurance company.

Prepare Relevant Documents:

In addition to your identification, you will need to provide a death certificate to initiate the claim. It is recommended to have a certified copy of the death certificate readily available when contacting the insurance company. In some cases, additional documentation may be required, such as proof of your relationship to the deceased or legal status as an executor or beneficiary.

Understand the Payout Options:

Life insurance companies typically offer several options for receiving the payout. These may include a lump-sum payment, installment payments, annuities, or a retained asset account. It is advisable to understand these options beforehand and consider which one aligns best with your financial needs and goals.

Initiate Contact Promptly:

It is recommended to contact the insurance company as soon as possible following the death of the insured. While there is generally no time limit for filing a claim, initiating the process promptly can help expedite the payout. Most insurance companies aim to provide payment within 30 to 60 days of the claim being made, but this can vary depending on the circumstances and the company's review process.

Be Prepared for Potential Delays:

In certain situations, there may be delays in the payout process. These delays can occur if the insured passed away within the first two years of the policy, if there are suspicions of fraud or misrepresented health information on the application, or if the death was a result of homicide or illegal activity. Being aware of these potential delays can help you manage your expectations and plan accordingly.

Seek Support if Needed:

If you feel overwhelmed or uncertain about the process, consider seeking support from a financial planner or advisor. They can guide you through the different payout options and help you make a decision that aligns with your financial goals. This is especially relevant if you are receiving a large payout, as it can be beneficial to have expert advice on managing and utilizing the funds effectively.

Frequently asked questions