Consumer Alert on Retained Asset Accounts Insurance News

Consumer Alert on Retained Asset Accounts

Written on September 17, 2010 – 10:26 pm | by Hunter Rankine

The National Association of Insurance Commissioners (NAIC) issued an alert this week about Retained Asset Accounts (RAAs). Many term life insurance benefits are often deposited into RAAs temporarily upon the death of an insured, until other arrangements can be made and grieving families can get around to sorting out finances.

The trouble is, according to the NAIC, insurance companies are making big bucks off the interest on the assets they retain, interest that should be going to the surviving family members. In addition, beneficiaries may be unaware that the funds are not guaranteed by the FDIC or other national insurance program, and there may be gaps in state programs guaranteeing funds.

Most often, insurers provide “checks” to the grieving family, which seem just like ordinary checks to the consumer, but there are some important differences. Funds are not drawn directly out of the bank they’re written on, in many cases, so the money must be transferred from the insurer to the bank before the check can be honored. Additionally, the services offered and fees charged for RAAs may not be readily disclosed to the customer.

According to the NAIC consumer alert, there are several questions you should ask if you’re considering posting the proceeds from a life insurance policy into the RAA offered by your insurer.

What interest rate will the RAA account pay you? How is the interest rate determined? How will your interest be credited to your account?
Will the funds be held in a bank or by the insurer themselves? If the life insurance proceeds are held by a traditional bank, they may be covered by FDIC insurance. If held by the insurer, they may be backed by a state guarantee fund. Make sure you know how your benefit will be managed and protected in case the insurance company should fail.
What services will be offered and what are the associated fees?

The NAIC recommends taking other payout options as an alternative to RAAs. You can usually choose a lump sum payment, which would allow you to deposit the money in an interest-bearing account of your choosing. Many insurers also offer an installment payout for life option as well as an installment payout for a specific period of time. In some cases, you may also wish to consider interest-only payout, which pays you only the interest that accrues on the total proceeds.

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