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July 29, 2010 at 08:00 PM
WASHINGTON BUREAU — New York Attorney General Andrew Cuomo is looking into allegations that a common method for paying out life insurance death benefits may be unfair to beneficiaries.
Cuomo was reacting to published reports about retained asset accounts – vehicles life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw cash with checks or payment cards.
The American Council of Life Insurers, Washington, has noted that life insurers that offer retained asset accounts usually let beneficiaries choose between using the accounts and getting lump-sum payments.
Retained asset accounts can help give spouses, children or others who are grieving over the death of a loved one the ability to put off thinking about financial considerations, insurers say.
The critics cited in the published reports say life insurers earn relatively high returns on the cash and pay beneficiaries low interest rates, even though the accounts are not insured by the Federal Deposit Insurance Corp. (FDIC). In some cases, the critics say, the insurers may not have given the beneficiaries any clear indication that the funds would be held in something other than an FDIC-insured bank.
Cuomo has subpoenaed records dealing with retained asset account programs at Prudential Financial Inc., Newark, N.J. (NYSE:PRU), which runs the Servicemembers’ Group Life Insurance (SGLI) program, and MetLife Inc, New York (NYSE:MET), which runs the group life program for federal civilian employees.
The entire life insurance industry is
under investigation for the practice, Cuomo says.
Cuomo says he is launching the investigation because the practices “appear to have denied grieving military families and others of millions in life-insurance cash.”
