“Unclaimed Life Insurance Funds in India Reach ₹22,237 Crore: Why Aren’t Beneficiaries Coming Forward?”

Life insurance companies in India are holding an astonishing ₹22,237 crore in unclaimed funds as of the start of the 2023-24 financial year. This issue has prompted the Insurance Regulatory and Development Authority of India (IRDAI) to take action. Between June and November 2023, the regulatory body successfully helped recover over ₹1,018 crore, but much of the money remains unclaimed.

Why Are Funds Unclaimed?

Unclaimed funds often arise when beneficiaries cannot be located due to outdated contact details, family changes, or the death of the nominee.

“This is a problem that needs to be solved as an industry,” said Sujeet Kothare, Executive Vice President of Marketing at Tata AIA. The company has been actively reaching out to beneficiaries to provide policy information and has also introduced initiatives like discounted cancer prevention vaccinations.

Issues with Non-Family Nominees

One major complication stems from policyholders naming non-family members as nominees. Insurers approach such cases with caution due to potential “moral hazards.”

“Having a non-relative as a nominee can create issues, but exceptions are made when there are no close relatives,” Kothare explained. He recommended setting up a trust in such situations to ensure smoother claims processing.

Legal Rights of Heirs

Edelweiss Life Insurance clarified that, legally, the policyholder’s heirs retain ownership of the funds even if the nominee is not a family member. For example, if a policyholder names a girlfriend as the nominee, she would receive the payout but is legally obligated to transfer the money to the policyholder’s heirs, such as their spouse or children. This rule applies equally to same-sex partners.

IRDAI’s Efforts to Resolve the Issue

IRDAI has instructed insurance companies to improve communication with policyholders and their families. Key measures include:

• Keeping contact details and bank information updated.
• Performing know-your-customer (KYC) checks regularly.
• Using media and credit agencies to trace policyholders or their beneficiaries.

A Call for Industry Reform

The growing volume of unclaimed funds highlights the need for reforms in the life insurance sector. Strengthening awareness about policy details and simplifying claims processes could help ensure beneficiaries receive the funds they are entitled to.

For now, insurers and regulatory bodies are urging policyholders to update their information and communicate openly with their nominees to avoid such challenges.