What is demutualization
Who is entitled to receive compensation
How come I didn't
How is the amount of compensation determined
Am I entitled to receive unclaimed compensation as
heir to a deceased policyholder
Are holders of small face value policies entitled to
How does demutualization affect my rights as a
Are there any long-term benefits of demutualization
How do I make a
What happens to unclaimed demutualization proceeds
a time limit on claims
What if I have reason to believe deceased family was
an policyholder entitled to unclaimed demutualization compensation
What are the tax implications of reclaimed
What is demutualization?
Demutualization is the process of
converting a mutual life insurance company, which is owned by its
policyholders, into a publicly traded stock company owned by shareholders,
who may or may also be policyholders. A company demutualizes
pursuant to a plan of conversion which must be approved by both policyholders and government
regulators. In exchange for their ownership interest in the old mutual
insurance company, policyholders are entitled to receive a combination of
stock, cash, and/or policy credits in the new company.
Why do companies demutualize?
Mutual insurance companies elect to demutualize
because as publicly-traded stockholder-owned companies it is easier to
raise capital, effect mergers and acquisitions, and to attract and retain
employees through the use of stock options.
Who is entitled to
Each companies plan of conversion defines which policyholders are entitled
to receive compensation, and there are differences among them. Eligible
policyholders generally include those whose policies are paid-up and in
force on or before the date of demutualization, and their heirs
How come I didn't know?
Each plan of conversion from a mutual insurance company to a stockholder
owned company specifically addresses what steps must be taken to notify
policyholders both of their right to vote on the conversion, and of their
potential entitlement to receive compensation for their ownership
interest. If you had an unreported change of name (after marriage or
divorce) or address, you may not have received the required
correspondence. Your entitlement may also have been missed if you are the
rightful heir to a policyholder who failed to claim the compensation.
Am I entitled to receive unclaimed compensation as rightful heir to a
Yes, heirs are entitled
to receive unclaimed demutualization compensation.
How is the amount
of compensation determined?
The amount each policyholder is
to receive is generally based on a number of factors, including length of time the policy has been in force, face value of the policy, and total premiums paid. For many policyholders,
the windfall arising from demutualization can be substantial, and the
financial benefits continue to accrue long after a company demutualizes.
amounts substantial - what sort of dollar figures are involved?
The amounts involved vary
according to each company's plan of conversion, and where compensation is
in the form of stock, how well the demutualized company has performed.
MetLife, for example, estimated its unclaimed demutualization compensation
at 60 million shares, worth $2,040,000,000 at the current share price.
Are holders of small face value policies entitled to receive compensation?
The answer is often "yes". Millions of small face
value policyholders - including owners and heirs with so-called industrial
life and burial insurance - are entitled to collect. Due to poor record
keeping, these policyholders constitute a disproportionate share of those
who have not yet claimed compensation.
demutualization affect my rights as a policyholder?
Demutualization does not affect policy benefits for policies that remain
in force. It may, in fact, reduce your policy premiums if some or all of
the compensation you are entitled to is in the form of policy credits.
Are there any
long-term benefits of demutualization?
As a shareholder in the demutualized
company, you may now be entitled to share in the company's profits via stock
dividends, and benefit from its growth in the form of an appreciated share
price. Your shares may be sold at any time, without affecting policy
How do I make a claim?
The claims process is simple
and straightforward. If you are claiming funds for a deceased family
member, you will need to provide proof of death and verification of your
to unclaimed demutualization proceeds?
If the demutualized company is unable to locate policyholders or heirs
owed compensation within a reasonable period of time set by statute, the
unclaimed stock and/or cash is remitted to the protective custody of a
government trust account. Thereafter owners or heirs can reclaim their
funds from the custodian.
Is there a time limit on claims?
No. The demutualization
proceeds, once remitted to the government custodian,
are generally available for claim in perpetuity. Prompt action should be
taken, however, as there is a downside to waiting. Unclaimed stock in the demutualized company may be sold by the custodian after a period of time,
generally 1-3 years.
Thereafter you are entitled only to the proceeds of the sale, not any
dividends or price appreciation which occurred after the sale date. In
addition, you may be subject to capital gains tax on the sale.
What if I have reason to believe deceased family was an policyholder
entitled to unclaimed demutualization compensation?
If you have reason to believe
a deceased family member was entitled to unclaimed demutualization
compensation, eventually the proceeds will be remitted to a government custodian.
The statutory length of time that must elapse before the proceeds are
turned over is known as the dormancy period. Dormancy periods on unclaimed
demutualization compensation vary by state, but generally run one-to-three
What are the tax implications of reclaimed demutualization compensation?
Currently the IRS
currently maintains policyholders have a zero basis in demutualization
proceeds. If you subsequently were to sell shares received from the
initial public offering, you may be obligated to pay tax on the capital
gains. It is important, therefore, to reclaim as quickly as possible any
distributions that have been remitted to a government custodian, as shares are typically sold after a
relatively short holding period. (Note: this position is currently facing
a legal challenge which may result in the reduction or elimination of