By David Pitt, AP Personal Finance Writer
Billions of dollars in unclaimed life insurance benefits are at the center of a legal wrestling match. Cash-strapped state governments are stepping up their efforts to make sure insurance companies properly account for the funds.
Although the money belongs to the beneficiaries, states have laws stipulating that the government becomes the owner of abandoned property after a period of time. Several states, budget-challenged California among them, are aggressively enforcing their unclaimed property laws to force insurers to hand over the money.
"It's a budgetary issue for additional revenue," says David Nolte, a principal at Fulcrum Financial Inquiry, a Los Angeles forensic accounting and investigations firm. Technically states hold unclaimed property for the benefit of the owner, but in many cases the owner doesn't come forward.
That means the state has use of the money interest-free. It's an easy source of revenue and an important one considering California faces a $15.4 billion budget deficit for the coming fiscal year.
Insurance proceeds are just part of the nearly $33 billion worth of abandoned property sitting in unclaimed accounts held by state officials, says the National Association of Unclaimed Property Administrators.
It's not uncommon for as much as a third of a state's unclaimed property to never find its rightful owner, says Brendan Bridgeland, director of the Cambridge, Mass.-based Center for Insurance Research, a nonprofit consumer advocacy group.
WHAT'S THE PROBLEM?
It's often a matter of logistics. Benefits sometimes go unclaimed because insurers lose track of the policyholder or the beneficiaries of life insurance and annuities.