is an inactive life insurance policy one that has been claimed and paid?

It depends on the policy that you have. Policies have a coverage value, for example you can choose to buy a plan that will pay out $500,000 to a beneficiary upon your death, that you pay a monthly premium for. In addition to that coverage benefit, life insurance policies also have a cash value. Depending on if you have a whole or a term life insurance policy, you can borrow from that cash value while you are still alive.

Policies generally become inactive after a policyholder has passed away, but the money is never claimed by the beneficiary. In some cases, family members may not even know that the deceased had a life insurance policy, and life insurance companies are not legally required to tell a beneficiary if they hear a policyholder has died. So just because a policy is inactive, does not mean that it has already been claimed and paid out by the life insurance company.

In fact, there are millions of dollars in life insurance policies each year that become inactive, when the policyholder passes away, that end up unclaimed. Again, most of the time this is because the beneficiary of the policy did not know that the policy existed. Sometimes a life insurance company will attempt to find a beneficiary, but if that is unsuccessful, then the policy will become inactive and unclaimed.

The fact that the policy has gone inactive does not mean that the life insurance company gets to keep the money indefinitely. After a time, if it goes unclaimed, then the state has an unclaimed property division that takes on the responsibility for posting about the policy using online and print sources, before it eventually transfers over to the state permanently.