Consumers May Mistakenly Believe Life Insurance Accounts Are FDIC-Insured
The Federal Deposit Insurance Corporation (FDIC) recently revealed concerns that consumers may mistakenly believe their life insurance accounts are FDIC-insured. This concern came in the wake of recent media reports that the life insurance industry may be holding onto money due to beneficiaries rather than issuing them lump sum checks because the interest rates they earn are higher.
Life Insurance Companies Subpoenaed Over Beneficiary Accounts
Recently, New York Attorney General Andrew Cuomo subpoenaed a number of life insurance companies, including Prudential Financial Inc., MetLife, Guardian Life Insurance, New York Life Insurance Co., Genworth Financial Inc., Unum Group and Northwestern Mutual Life Insurance in order to investigate their life insurance policy records.
The normal practice after a policyholder dies is for a life insurer to place money into a retained-asset account, which earns interest that can be withdrawn at any time. Some of the interest is to be paid to the beneficiary and the insurance company keeps the rest.
Cuomo is investigating companies under the suspicion that they are holding the money longer to draw more interest.
Is Your Beneficiary Account FDIC Insured?
As the reports of subpoenas have circulated through various media outlets, the FDIC has become concerned that consumers believe these accounts are FDIC-insured. The corporation says this is not the case.
Instead, in the event that a life insurance company was to collapse, the accounts will be covered by a state guaranty. This guaranty would cover as much as $300,000 per account in 49 states as well as up to $500,000 per account in Connecticut.
The attorney general is in the process of looking into the accounts to determine if the lump sum payments are being held too long. While this all gets straightened out, the FDIC wants to make sure beneficiaries understand their accounts are not insured by the corporation and should look to the state guaranty for collapsed-fund answers.