Beneficiaries Warned About Life Insurance Payouts
On Sunday, the National Association of Insurance Commissioners issued a consumer alert about the industry practice of retaining life insurance funds. This alert follows a recent series of subpoenas from the New York State Attorney General to life insurance companies that he suspected were holding funds in retained-asset accounts to grow interest and make money rather than distributing life insurance policy funds to beneficiaries.
Life Insurers Under Fire
Last week, we reported New York Attorney General, Andrew Cuomo, had subpoenaed more life insurance companies in an effort to determine how the retained-asset funds of life insurance beneficiaries were being managed. Among those companies under investigation included MetLife, Prudential Financial, New York Life Insurance Co., Guardian Life Insurance and Northwestern Mutual Life Insurance.
In a meeting the NAIC panel held on in Seattle on Sunday, it was determined in July alone, life insurers had profited by holding and investing millions.
NAIC Issues Alert
As a result of investing the retained-asset funds instead of distributing them, $28 billion was owed to 1 million beneficiaries. In response to its investigation, the NAIC issued an alert to consumers to let them know that they may be able to earn a higher interest rate on their life insurance proceeds if they were to select a different payout option rather than retained-asset accounts where beneficiaries are given a draft book to draw on their money.
Retained-Fund Accounts Aren’t FDIC Insured
In addition to life insurance companies holding on to a beneficiary’s money longer with a retained-asset account, consumers were alerted that these accounts are not insured by the FDIC. In an announcement issued last week, the FDIC told consumers if their insurer was to default over time,Â it would not be responsible for the beneficiary’s losses. Instead, a state guaranty would cover the losses.
With so much to consider, the NAIC wants to make sure the consumers know what they’re getting into when setting up a retained-asset account. It may be that insurers are looking to benefit the most while beneficiaries wait for the full payout on a policy.