Introduction
Lots of cash from life insurance policies go unclaimed in Australia every year. This money ends up lost among the billions floating in forgotten financial products. When a life insurance policy finally matures and the beneficiary doesn’t claim it within seven years, the stash gets handed over to the Australian Securities and Investments Commission. Imagine how much hassle this can cause for families trying to get what’s theirs!
Ensuring your life insurance payout reaches your intended beneficiaries requires careful planning and proactive management of your insurance policy. This guide provides essential information and practical steps for policyholders to help prevent their life insurance from going unclaimed, ensuring financial support reaches loved ones as intended.
Understanding Unclaimed Life Insurance Money
What Unclaimed Life Insurance Means in Australia
In Australia, life insurance money legally becomes ‘unclaimed’ if the benefit payable has not been paid out within seven years after the life insurance policy matures. A policy typically matures when the payout becomes due, such as when:
- The person covered by the insurance policy passes away
- The insured person is diagnosed with a terminal illness
At this point, the nominated beneficiary is eligible to make a claim.
This seven-year rule is defined under section 216 of the Life Insurance Act 1995. Life insurance companies are required by law to report and transfer any unclaimed money to the Australian Securities and Investments Commission (ASIC) annually. ASIC, acting as the administrator, then transfers these funds to the Commonwealth of Australia Consolidated Revenue Fund.
Despite being transferred, this unclaimed money can still be claimed by the rightful owner or beneficiary at any time; there are no time limits on making a claim. Furthermore, since 1 July 2013, interest is paid on unclaimed life insurance money held by ASIC, with the rate varying each year.
Beneficiaries can search for potential unclaimed money using the free unclaimed money search tool on ASIC’s Moneysmart website.
Why Life Insurance Policies Go Unclaimed
Several common factors contribute to life insurance policies going unclaimed, often stemming from administrative oversights or lack of communication. These include:
- Outdated Contact Details: Policyholders may move, change their name, or update their phone number or email address without informing their life insurer. Similarly, if the contact details held for the beneficiary are out of date, the insurance company may struggle to locate them when the policy becomes payable.
- Beneficiaries Unaware of the Policy: Often, beneficiaries simply do not know that a life insurance policy exists in their favour. If they are unaware, they cannot initiate a claim on the policy.
- Difficulty Locating Beneficiaries: Even if aware of the policy, beneficiaries might be difficult for the insurer to track down, especially if considerable time has passed or they have relocated without updating details.
- Beneficiary Has Passed Away: The nominated beneficiary might pass away before the policyholder. If the policyholder doesn’t update the nomination, complications arise, potentially leading to the benefit being paid to the estate or becoming unclaimed.
- Forgotten Policies: Policyholders sometimes forget they have a life insurance policy, particularly if it was taken out many years prior or is held within their superannuation fund.
- Issues with Superannuation Policies: Life insurance cover held within superannuation is frequently overlooked. Members may be unaware of the cover, or beneficiary nominations within the super fund might be outdated, invalid, or non-existent, increasing the risk of the life insurance benefit going unclaimed.
Essential Steps to Avoid Unclaimed Life Insurance
Keep Your Insurer Updated with Current Details
One of the most critical steps to prevent your life insurance from becoming unclaimed money is to keep your details current with your insurance company. It is essential to promptly notify your life insurer of any changes to your personal contact information. This includes updates to your:
- Residential or postal address
- Phone numbers
- Email address
- Full legal name, especially after marriage or divorce
Equally important is ensuring the contact details for your nominated beneficiaries held by the insurer are also accurate and up-to-date.
If the insurance provider cannot contact you or locate your beneficiaries after your passing due to outdated information, the life insurance policy payout process can be significantly delayed. This increases the risk of the funds eventually being transferred to the Australian Securities and Investments Commission (ASIC) as unclaimed money. Maintaining this communication link is a fundamental aspect of responsible policy ownership.
Inform Your Beneficiaries About Your Policy
Clear communication with your nominated beneficiaries is a simple yet highly effective way to avoid unclaimed life insurance. You should explicitly inform the people you have chosen to receive the benefit that the life insurance policy exists.
When informing them, provide essential details such as:
- The full name of the insurance company providing the life insurance cover
- The specific policy number for easy reference
- Clear instructions on where the policy documents are kept, whether physical copies or secure digital files
- Basic information on how they can initiate a claim with the insurer
This proactive communication empowers your beneficiaries, giving them the necessary knowledge to contact the insurer and make a claim promptly when the time comes. It helps prevent situations where beneficiaries are unaware they are entitled to a payout, a common reason why life insurance policies go unclaimed.
Manage Beneficiary Nominations Proactively
Actively managing your beneficiary nominations is crucial for ensuring the life insurance payout reaches the right people without unnecessary complications. Nominating specific beneficiaries provides clear instructions to the insurer.
It is vital to keep these nominations current. You should review and update your beneficiary details following significant life events, including:
- Marriage or entering a new de facto relationship
- Divorce or separation from a partner previously nominated
- The birth or adoption of children who need to be included
- The unfortunate event of a nominated beneficiary passing away before you
In the case of a beneficiary passing away before you, you must contact the insurer immediately to change the nomination, as their share does not automatically pass to other beneficiaries.
The process for updating nominations generally involves contacting your insurance provider, obtaining and completing the correct form (like a “Change of Beneficiary Form”), and submitting it according to their instructions. Regularly reviewing your nominations ensures they align with your current wishes and circumstances.
Securely Store Your Life Insurance Policy Documents
Proper storage of your life insurance policy documents is essential for facilitating a smooth claims process for your beneficiaries or executor. Keep original physical documents, including the policy schedule and Product Disclosure Statement (PDS), in a secure yet accessible location.
Consider these storage options:
- A fireproof safe at home
- A dedicated and clearly labelled filing system
- A secure deposit box (ensure your executor has authority to access it)
Maintain digital copies as well, ensuring they are password-protected and stored securely, perhaps on an encrypted drive or in a secure cloud storage service.
Crucially, you must inform your executor and/or primary beneficiaries where these important documents are located. Providing them with the insurer’s name and policy number alongside the location makes it significantly easier for them to initiate the claim after your passing.
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Aligning Life Insurance with Your Estate Plan
Ensure Your Will Reflects Your Intentions
Understanding how your life insurance policy interacts with your Will is essential for effective estate planning. Generally, a valid beneficiary nomination made directly on your life insurance policy will take precedence over instructions in your Will regarding those specific funds. This means the insurance company is typically required to pay the benefit directly to the nominated person, bypassing your estate.
However, life insurance proceeds will usually become part of your estate in certain situations. This occurs if:
- You have not nominated any beneficiary on the policy
- The beneficiary nomination you made is invalid or has lapsed (which can happen with some superannuation nominations)
- You specifically nominated your ‘Estate’ or ‘Legal Personal Representative’ as the beneficiary
When insurance money is paid into your estate, it is distributed according to the terms of your Will, or by intestacy rules if no valid Will exists. Therefore, it is crucial to keep your Will up-to-date, clearly stating how you wish these funds, along with your other assets, to be distributed.
Including details about your life insurance policy within your Will can also assist your executor in identifying and managing the policy if the proceeds are payable to the estate. Reviewing and updating your Will after significant life events, such as marriage, divorce, or the birth of a child, helps ensure it reflects your current intentions.
Manage Life Insurance Within Your Superannuation Fund
Many Australians hold life insurance cover through their superannuation funds, sometimes without being fully aware of the details. It is important to check the specifics of any insurance policy attached to your superannuation accounts. You should confirm the level of cover and understand the rules surrounding beneficiary nominations within the super system.
You need to ensure your beneficiary nominations within each super fund are current and correctly made according to superannuation law. Within super, you can typically make:
- Binding nominations: These legally require the super fund trustee to pay the benefit to your nominated dependants or Legal Personal Representative, provided the nomination is valid (often requiring specific forms, witnessing, and sometimes renewal)
- Non-binding nominations: These act as a guide for the trustee, who retains the final discretion on who receives the payout, considering your wishes alongside superannuation laws
Keeping these nominations updated, particularly after life changes or as required for lapsing binding nominations (often every three years), is vital. Furthermore, make sure your beneficiaries or family members are aware that you have life insurance cover within your superannuation, as this is a common area where benefits can be overlooked and potentially become unclaimed money later managed by the Australian Taxation Office (ATO), not ASIC.
Finding and Claiming Unclaimed Life Insurance Benefits
How to Find Unclaimed Life Insurance Using ASIC Search
If you are a beneficiary or executor and suspect there might be lost or unclaimed life insurance money, the primary tool is the free unclaimed money search facility provided by the Australian Securities and Investments Commission (ASIC). You can access this search tool via the Moneysmart website.
To use the ASIC search:
- Visit the Moneysmart website and navigate to the unclaimed money search tool.
- Enter the full name of the deceased person, including any known variations or middle names.
- The search is free, so be cautious of private companies offering to search for a fee.
If the search finds a potential match for unclaimed life insurance, it will display details including an Original Transaction Number (OTN). You must record this OTN accurately as it is essential for the claims process.
While the ASIC search is crucial for funds already transferred (typically 7 years after the policy matures), other avenues should also be explored, especially shortly after a death:
- Personal Records: Thoroughly check the deceased’s personal documents, bank statements (for premium payments), emails, and safe deposit boxes.
- Superannuation Funds: Check with known superannuation funds or use the Australian Taxation Office (ATO) online services via myGov to search for lost super, as life insurance is often held within super. Unclaimed super money is managed by the ATO, not ASIC.
- Former Employers: Contact the deceased’s previous employers, as they may have records of group life insurance policies.
- Financial Advisors: Reach out to any financial advisors, accountants, or lawyers the deceased may have used.
Steps to Claim an Unclaimed Life Insurance Payout
Once you have found potential unclaimed life insurance money using the ASIC search and have the OTN, follow these steps to make a claim:
- Identify and Contact the Insurer: The ASIC search result should help identify the original life insurance company that held the policy. Contact the insurer directly, asking for their unclaimed money department, and provide the OTN. ASIC can provide details of the life insurer if needed.
- Follow the Insurer’s Claims Process: The insurance company will guide you through their specific claims procedure.
- Provide Necessary Documentation: You will need to supply documents to prove your identity and entitlement. This typically includes:
- Certified copies of your identification (e.g., passport, driver’s licence).
- A certified copy of the deceased person’s Death Certificate.
- Proof of your relationship to the deceased (e.g., birth or marriage certificate).
- The Grant of Probate or Letters of Administration if you are claiming as the executor of the estate.
- Insurer Assesses the Claim: The insurer will review your submitted documents to verify your identity and right to claim the life insurance benefit.
- Insurer Requests Funds from ASIC: If the insurer approves your claim, they will notify ASIC and request the release of the funds associated with the OTN.
- ASIC Releases Funds to Insurer: ASIC will process the request and transfer the unclaimed money, plus any applicable interest accrued since 1 July 2013, back to the insurance company. This step generally takes about 28 days.
- Insurer Pays the Claimant: After receiving the funds from ASIC, the insurance company will make the final payment to you. The insurer’s timeline for this final step may vary.
Conclusion
Significant amounts of life insurance money go unclaimed in Australia each year, often due to outdated details, unaware beneficiaries, or forgotten policies, highlighting the need for proactive management. By keeping contact information current, informing beneficiaries, managing nominations diligently, securing documents, and aligning insurance with estate plans, policyholders can help ensure their intended financial support reaches loved ones, while beneficiaries can utilise tools like the ASIC Moneysmart search to find and claim benefits.
To ensure your life insurance arrangements align perfectly with your overall financial strategy and estate planning goals, contact Money Path in Adelaide today. Our experienced team offers trusted expertise and tailored financial planning advice, helping you secure peace of mind for your future and that of your beneficiaries.
