Life insurance companies offer retained asset accounts (RAAs) as a convenience to beneficiaries upon the death of an insured. However, this past summer, RAAs drew controversy after the publication Bloomberg Markets raised questions about the interest rates paid, whether beneficiaries truly understood their options, and the guarantees that apply to policy proceeds. Since then, state regulators have begun to issue guidelines, while the National Association of Insurance Commissions (NAIC) has begun drafting a model law.

Until the RAA landscape becomes clearer, you may want to advise clients who have lost a loved one to proceed with caution before deciding how to receive their money. “When it comes to life insurance payout options, one size does not fit all,” advises Virginia Insurance Commissioner Alfred Gross. He suggests consumers consider the following points when contemplating using an RAA as a settlement option:

• What interest rate will be paid on the proceeds?
• How will the interest rate be determined and how will the interest be credited to the account?
• Will the proceeds be held in a bank? If so, what conditions and limitations are applicable to the account’s FDIC protection?
• Will the insurance company hold the proceeds? If so what conditions and limitations apply to state guarantee fund protection of the proceeds should the insurer fail?
• Will the proceeds be held in a bank checking account or in an insurer draft account?
• What banking services, if any, will be provided?
• What services will be provided at no charge and what services will involve a fee.

As you discuss these points with clients, also be sure to mention that RAAs are but one of several settlement options available. Others typically include a lump-sum payout, installment payouts for a fixed amount or period of time, installment payouts for a lifetime, and interest-only payouts.

What “Red Flags” are affecting your business? The National Ethics Association welcomes your input. Send your comments to: hlew@ethics.net