Escheatment

Escheatment is the transfer of abandoned or unclaimed property to the state. Every state has an unclaimed property law requiring businesses, including life insurers, to report and hand over money they owe someone but cannot deliver after a set dormancy period, commonly three to five years. The state then holds the money in custody, and the rightful owner or heir can claim it later.

For life insurance, escheatment usually happens when an insured has died but the beneficiary never filed a claim, or when a matured policy, annuity payment or uncashed claim check goes unclaimed. Hypothetical example: an insurer learns through a Death Master File match that a policyholder died four years ago. It searches for the named beneficiary and sends letters but cannot find her, so after the dormancy period it reports and remits the $25,000 death benefit to the state. She can later claim it through that state's unclaimed property program.

Insurers that fail to escheat face audits and penalties, and multistate examinations in the 2010s led to large settlements. For families, the lesson is to search: every state runs a free unclaimed property website, and MissingMoney.com searches many at once. Claiming from the state is free, so be wary of finders charging steep fees. See unclaimed life insurance money and state unclaimed property and how to find a lost life insurance policy.