Life insurance benefits bill passes House panel

FRANKFORT—A 2012 law that requires life insurance companies to make a good-faith effort to locate beneficiaries of policies they have sold would be applied retroactively under legislation that cleared the House Banking and Insurance Committee today.

House Bill 408, sponsored by Rep. Chris Harris, D-Forest Hills, specifies that life insurance companies must honor life insurance policies and related agreement that they issued before and after the passage of the 2012 Unclaimed Life Insurance Benefits Act. The law requires life insurance companies to determine if a policy holder has died and then make a solid effort to locate beneficiaries of his or her policy.

HB 408 was filed by Harris this month after the state dropped its defense of the 2012 law in a case filed by several life insurance companies against the law four years ago. The companies argued that the law should not apply to policies issued before the legislation took effect. An appeals court agreed, saying Kentucky law requires a retroactivity provision in any law that is intended to apply to a period before the law took effect.

Harris said HB 408 includes that provision, thereby ensuring that thousands of mostly low-dollar burial plans are honored.

“This bill will not require insurance companies to pay one red cent more than their contract requires them to pay. It does however require them to make a concerted effort to pay what they actually owe to our constituents,” said Harris.

Questions about the extent companies would have to go through to find beneficiaries were raised by Rep. Brad Montell, R-Shelbyville, who said many policies were sold door-to-door 50 or 60 years ago and beneficiaries of those policies may be hard to track.

“How much additional work will these smaller insurance companies expected to put into this, you know a $500 policy or $2500 policy sold 50 or 60 years ago?” Montell asked. “I want to enforce payment to beneficiaries, I just don’t want it to be unreasonable on this retroactive part of the law.”

Making a good-faith effort will not require a company to “perform miracles” and locate people who are nearly impossible to find, said Harris. “But it does require them to make a good-faith effort to find some of these beneficiaries who are owed this money and haven’t received it.”

House Banking and Insurance Chair Rep. Jeff Greer, D-Brandenburg, said smaller life insurance policies still serve a purpose in the market no matter how many decades have passed, adding “we need to tighten this up some.”

Rep. James Tipton, R-Taylorsville, told his fellow committee members that adding a retroactivity provision to the 2012 law is “the right thing” to correct what he called an “oversight”. “I am a real estate agent and one thing I’ve learned is … it’s always best to be complete,” said Tipton.

Twenty two states including Kentucky have adopted laws requiring insurers to make a good-faith effort to locate beneficiaries of death and burial benefits, said Harris.

HB 408 now goes to the full House for consideration.

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