by mbclark70 » Tue Aug 21, 2012 12:54 pm
My father passed away last year and named my brother as his beneficiary. We are currently receiving monthly payments and the way my father set it up in November of 2017 he would get a large payout. My brother told us last week that he received a letteer from Hartford stating that they are not obligated per federal law to payout the final lump sum to the beneficiary. I find this hard to beleive because I was with my father when he set this up and know that he did that so the money would go to his family if anything happened to him. Is there anything we can do about this.
Posted: Thu Aug 23, 2012 11:41 pm Post Subject:
My brother told us last week that he received a letteer from Hartford stating that they are not obligated per federal law to payout the final lump sum to the beneficiary.
First, there is no "federal law" that applies in this situation. Life insurance is regulated entirely under state law, with the possible exception of certain aspects of an employer-sponsored group life insurance policy under ERISA -- such as whether a divorced spouse remains the beneficiary -- which is probably not the case here, since your brother is receiving payments from the policy.
Under what "settlement option" are the insurance proceeds being paid? It is possible, though unlikely, that the proceeds are being paid under a "period certain" option in the life insurance contract that permits unpaid funds to remain with the insurance company when the last of the payments (such as payment #60 of 60 total payments) is made. Normally, the life insurance proceeds would be paid 100% plus interest over the contractually obligated period of time. That "period certain" would distribute the death benefit 100% -- in the same manner as a lump sum payment -- but with the addition of interest as long as the insurance company retained any of the death benefit principal. For the insurance company to keep any portion of that money is improper without full disclosure that it could.
Annuities are entirely different, and this is always true in ANNUITIES. Unpaid annuity principal at the end of the contractually obligated period remains with the insurance company. Again, that's not federal law, it's what the contract states. A person could choose a "lifetime only" option, and if they died after receiving just one payment, the remainder of the principal used to purchase the annuity stays with the insurance company. A "period certain" option in an annuity would usually be calculated to pay out 85% or more of the annuity principal. The longer the period certain, the closer to 100% of the principal (or more) will be paid out. But if there were any amount remaining after the last payment, it would be kept by the insurance company.
If the life insurance death benefit was used to purchase an annuity outside the life insurance contract, and the facts were not properly disclosed at that time, you could have a legal action against the insurance agent and company. There are also "spendthrift" provisions in both the insurance contract and state insurance or probate laws that prevent anyone from interfering with the passage of the money from the insurance company to the beneficiary.
I cannot tell, at this point, which of these scenarios applies to your situation. But I can certainly look more closely at your situation and give you an opinion in this regard. If the insurance company is acting (or is about to act) unlawfully, it may be something worth pursuing in a court of law. Send me a copy of the letter the insurance company has sent to your brother as a starting point. Or email me for more information.
Add your comment