Do Life Insurance Benefits Expire?

In Part I, Unclaimed Life Insurance Benefits, we explained how to find out if someone has left you money in a life insurance policy and, if so, how to claim it. Now let’s talk about the shelf-life of death benefits.

Let’s say your Uncle Elmo had a life insurance policy that named you as the beneficiary. If the policy was in good standing, meaning Uncle Elmo had faithfully made premium payments prior to passing away, then there is no expiration date on the policy benefit. But (this is insurance, so there’s always a but or two), there are some considerations that may apply to how much money you stand to receive.

First of all, was this a term life policy? This type of policy is sold for a set number of years (typically 10 or 20). Uncle Elmo may have paid the premiums, but if he died one second after the expiration of the term (which includes the grace period), there are no death benefits.

It’s a whole different thing with a whole life policy. When the insurance company notices that your Uncle Elmo has stopped paying his premiums, they’re going to do one of two things.They’ll either keep the policy in force permanently but the death benefit paid will be reduced to an amount determined by the policy’s cash value. Or, they’ll change it to an extended-term policy, which means they take any cash value accrued and convert the policy to term life with the same death benefit. That policy will continue as long as the cash value covers the premiums.

In either of the above cases, the insurance company will make every effort to learn why Uncle Elmo hasn’t paid his premiums, including sending lots of letters to his last known address and checking a variety of databases to see if his existence status has changed. If Uncle Elmo has simply been out of touch for a while and his policy was switched to extended-term and that term expires before Uncle Elmo does, you have no benefits. Of course, if the premium payments weren’t made because Uncle Elmo died, then you will receive the full amount due.

One more thing, if it takes the insurance company a while to locate you or it takes you a while to find the policy and claim your inheritance, you’ll receive the full death benefit plus interest from the date of Uncle Elmo’s demise.