Brown: Treasurer tackles insurance companies’ dirty little secret

Nine years after Chicago psychologist Dr. Terra Thomas died in an Indiana car crash, an employee of the Illinois state treasurer’s office reached out to her two surviving sons this spring with some shocking news.

Thomas had left them a newly discovered $105,000 life insurance policy.

As a single mom, Thomas had been mindful of the tough life her severely learning disabled teenage boys might face without her and had insured herself accordingly.

But the death benefits went unclaimed by her estate, and the insurance company was under no legal obligation to check whether policyholders had died.

It took a government-forced audit of the insurance company to turn up the policy, and it took the work of the treasurer’s office, which handles unclaimed property, to find her beneficiaries.

Follow @MarkBrownCSTIllinois Treasurer Michael Frerichs says Terra Thomas’ story is a telling example of one of the dirty little secrets of the life insurance industry.

“They count on a certain number of policies not being cashed,” Frerichs said.

On Wednesday, Frerichs’ Task Force on Unclaimed Life Insurance Policies held a hearing in Chicago to help call attention to legislation awaiting action by Gov. Bruce Rauner that would require insurance companies to check a national Social Security database to determine whether policyholders have died and to make a good-faith effort to locate their beneficiaries.

Although 20 of the nation’s largest insurers have already committed to do so as part of a national settlement with state authorities, other companies, including Chicago-based Kemper Corp., have balked.

They argue that under the terms of their insurance contracts it is the responsibility of beneficiaries to file a claim if they want to be paid, a factor taken into account when premiums were priced.

Kemper subsidiaries sued Frerichs last year to block his office from auditing the companies’ lists of policyholders in a search for individuals who might be owed life insurance benefits.

A Kemper spokesman said the company supports the use of the Social Security database, but argued “that use should be thoughtful and practical, and that’s not what this bill does.”

At Wednesday’s hearing, a panel of state legislators and others heard testimony from individuals for whom the treasurer’s office had found benefits.

No witness was more compelling than Lynn Lucchese-Soto, who told the story of Terra Thomas and her sons.

It was Lucchese-Soto and her husband who took in the Thomas boys after the 2007 auto accident that claimed the life of their mother and triplet sister.

Lucchese-Soto explained that her own learning disabled son was best friends with Thomas’ children at the Cove School in Northbrook.

“We loved them, and we knew it was the best thing for them. They wanted to be with us,” she told me after the hearing.

Lucchese-Soto, 62, had also been friends with Thomas, who at the time of her death was president of Human Resources Development Institute, a Chicago non-profit.

Another insurance policy that was discovered at the time of Thomas’ death went into a trust for the two boys to help pay for their education, she said.

“That had been their mother’s dream that they be educated and have opportunities,” Lucchese-Soto said.

The newly discovered insurance funds will also go into a trust for the pair, who are now 25 and attending Wright College. Both hold jobs, she said.

Lucchese-Soto, who is an attorney, said her own dream is that the young men use the money some day for a down payment on their own home.

Frerichs said audits conducted to date have identified $550 million in death benefits that were never paid to Illinois families. He believes there could be hundreds of millions more at the companies ducking the audits.

Lucchese-Soto downplayed the impact on her family of not having the use of the insurance proceeds for nine years.

But she said she thinks about other families under similar circumstances who might need the funds but never receive them because of how life insurance companies handle their claims.

I think about that, too, and it really ticks me off.

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