Title Research and Zurich Insurance sign new agreement
21/04/2009
Inside indemnities: missing beneficiary and other probate indemnities explained
Title Research and Zurich Insurance plc are pleased to announce that they are working together to provide missing beneficiary indemnity insurance and comfort policies. To learn more about the different types of probate insurance available, and what you may need for different probate circumstances, read our new article by Stephen Rigden.
As anyone who has seen “Who Do You Think You Are?” move within the last three years from BBC2 to prime-time BBC1 and a bank holiday weekend event at Olympia knows, recreational family history has never been so popular. Along with other contemporary concerns with identity, such as the growth in the number of adopted, fostered and illegitimate persons researching their birth families, this has the potential to increase the risks associated with the distribution of estates.
Firstly, it has made underwriters more risk-averse. Probate practitioners wishing to protect the Personal Representatives (PRs) from future claims from persons not included in the distribution have long been able to obtain missing beneficiary indemnity insurance from a limited number of specialist underwriting teams. This market has shrunk in recent years, with Royal & Sun Alliance, one of the major players, withdrawing earlier this year. Those insurers remaining in the field are reluctant to issue policies unless as much as possible has been done to locate missing beneficiaries, or to prove that there are none. Whereas formerly an insurance company might sometimes exercise discretion and issue policies pragmatically where, for example, the estate was very modest or the risk of additional beneficiaries coming forward apparently slight, the rise of recreational family history will give them pause for thought. The likelihood of additional relevant parties materialising rises as more people research their family trees. And this coincides, of course, with estate sizes increasing in line with property prices (notwithstanding the recent buck in this trend), magnifying the size of any potential claims and the associated commercial risk for insurers.
Concurrently, this same development has made it even more desirable and necessary for probate practitioners to advise PRs to take out indemnity insurance. A PR who proceeds to distribution without obtaining appropriate cover is exposed to the risk that claims will be made against the estate, for which they are, and remain, personally liable.
In short, PRs need missing beneficiary indemnity insurance more, and the providers are less minded to provide it.
It is important to understand two underlying facts. Firstly, insurers will shy away from family trees prepared by the PRs and especially by family members, as (viewed through an insurer’s critical lens) these have a vested interest and are potentially conflicted. This is why insurers will ask for an independent “genealogist’s report”, by which they mean a report from a specialist firm with proven methodologies and professional indemnity cover – not an amateur family historian, no matter how keen or seemingly knowledgeable. Secondly, the resources which specialist genealogists use have their own limitations, as the documentary record is only as good as far as it goes and the family members interviewed as the result of the investigative process will not necessarily be aware of, or disclose, all material facts. A prime instance of this is the fact that illegitimate children, especially of a male, are both notoriously invisible in the documentary record and may be unknown to family, or knowledge of them withheld from the genealogist due to perceived social embarrassment.
No matter how good the specialist genealogist who prepares the report and how thorough their research, then, it is advisable to seek a missing beneficiary indemnity insurance policy on all but the simplest intestacies and even on many testate estates. The following types of cover can be considered.
Missing will indemnity insurance. This is designed to protect the PRs from a will, or a later will than that being probated, turning up in future and potentially undermining the whole basis of a distribution. It therefore has use on both intestate and testate estates.
Missing beneficiary indemnity insurance – specific. This guards PRs against future claims from known people, for example:
- individual beneficiaries, entitled under a will or upon intestacy, who are known to be missing and cannot be located; or
- from a known line or lines of a family, on intestacy, which remain resistant to research and whose destiny is unknown.
In these instances, there is a clear and present risk, and obtaining insurance is highly advisable.
Missing beneficiary indemnity insurance – comfort. This guards PRs against future claims from currently unknown parties, for example:
- prior claimants under an intestacy. For instance, a distribution is being contemplated to uncles and aunts of the whole blood and their issue, research indicating that all prior classes of kin have been cleared off. However, cover is sought against any unknown heirs in the classes which would take in precedence. This would then protect the PRs against, for example, everyone from an unknown spouse or child of the Deceased, to an illegitimate half blood sibling or their issue.
- equal claimants under an intestacy – persons within the same class as the known heirs to which the distribution is being made. For instance, the known heirs are the children and grandchildren of whole blood siblings but the parents led a peripatetic life, the family was large and became dispersed, and there remains doubt as to its extent. This is not as unusual as it may sound – recent examples come to mind of an Irish family removing from Cork to various parts of England, of a Romany family which did customarily register the births of children with the authorities, and of a London family with common surname in which the children were orphaned in early infancy and brought up separately in unrelated families.
- or, of course, both the above for the full belt and braces effect.
In these instances, although there is no concrete evidence of a person or persons missing, we would recommend that PRs obtain insurance for their peace of mind prior to distribution. The premium is usually reasonable and it gives the PRs comfort that they are protected should claimants emerge in future.
As society grows more litigious and overlooked heirs may claim for interest upon their original entitlement, probate practitioners could advise their PR clients to consider an escalator (or accelerator), for instance, 6% interest (or the funds-in-court rate at the time of the application) for a period of 6 or 12 years. The difference in premium is usually modest and it gives the PRs greater peace of mind that they will not be called upon to pay out.
For each policy, a single premium will be payable, calculated and expressed as a percentage of the limit of indemnity required, but subject to the underwriters’ minimum fee (which may vary from £250 up to £500). The premium asked for by the insurance company will depend upon a consideration of all relevant factors. These may vary from case to case but are likely to include the value of the estate, or the share(s) in it; the type of policy (specific or comfort) being applied for; the extent of research already undertaken; the date of last contact with any known missing individuals; whether any known missing individuals are expected still to be alive; and events within the lives of such persons (e.g. emigration, or details of marriage or issue). However, a typical premium might be between 0.5% and 3% of the limit of indemnity.
The premium is subject to Insurance Premium Tax at 5%.
Title Research is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only. Our registration number is 314715.