With cash value policies if you do not make a payment on the insurance part of the policy they take it out of the cash reserves. Eventually that cash can run out and the policy lapses.
So if somebody has died and the insurance company is not notified, the insurer in this case John Hancock will continue to tap the cash in the policy to pay the premium.
Now the problem the State Controller had with this is they feel that Hancock should make an attempt to contact the insured.
I do agree that insurance companies should attempt to contact policy holders.
They usually do send out annual policy statements each policy anniversary, so you are always aware of policy values, any expenses, and with wrap-up on how your policy fared during the year.
I might add, whomever placed them in the policy also receives a copy and should be conducting policy reviews.
But the easiest solution to this would be to tell someone (especially beneficiaries) about the policy so they could notify the insurer. I am pretty sure that would remedy the problem.
I don't think a policy holder would like the idea that their loved one didn't get the proceeds of the policy they may have paid for for many years.
In fact, my long term care policy just sent me an annual review slip asking me if my daughter's address is still my back-up address. If my policy were to ever lapse, the insurer would automatically contact my daughter to be sure that all is well and it is simply an oversight.
We see this problem with things like Long term care policies, with wills and advanced directives.
It is a very good practice to let a responsible party know that these things exist and where they can be found.
These policies can be powerful and valuable tools and they need to be treated as such.