Business entities, including small businesses, frequently purchase life insurance on key employees and owners. Recently, a court case in Michigan proved how important it is for businesses to keep track of their policies and ownership documentation in order. Unlike individually owned policies, business owned policies are affected through business ownership and shareholder changes, business dissolution, and other factors. In the Michigan case, during the 1970's a small business purchased a life insurance policy for its owner from MetLife Inc. The business was dissolved in 1975. In 2000, Metlife converted from a mutual insurer owned by its policyholders to a publicly traded company. This meant the policyholders were entitled to cash. In this case, it meant nearly $200,000. Since Metlife could not locate the business, the money was given to the State of Michigan. The widow of the small business, now 80 years old, discovered the money was being held by the State of Michigan and filed a claim. Her claim was denied because she could not provide adequate proof that she was indeed the owner of the policy and that the business had been dissolved. The claim was denied despite the widow showing documentation about the family's ownership and status as corporate officers of the dissolved corporation. A Michigan Court of Appeals agreed with the state. However, the court did leave a reason for hope by stating that historic shareholders may be allowed to recover the proceeds. The widow's attorney will continue to fight this case.
This case is a good example of why businesses that are beneficiaries of life insurance policies must keep good control over their life policies. As the case above shows, a business that is dissolved may encounter problems when attempting to claim life insurance proceeds on a key employee or owner.