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ACLI Speaks Up for Retained Asset Accounts

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WASHINGTON BUREAU — Life industry representatives today delivered the message that the retained asset account is an appropriate alternative to forcing people “to make a big financial decision at a time of maximum stress.”

The American Council of Life Insurers, Washington, organized a conference call with reporters about an “issue that has burst upon us.”

RAAs are vehicles life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw cash with checks or payment cards.

Bloomberg Markets recently drew attention to RAAs by quoting critics who say life insurers earn high returns on the cash and pay beneficiaries low rates without giving the beneficiaries adequate notice that the cash is in something other than a bank account insured by the Federal Deposit Insurance Corp. (FDIC).

Paul Graham, the chief actuary at the ACLI, said he wanted to dispel myths about the accounts. “The thought that this money is in a less secure location than in a bank is ill-founded,” he said.

Most states say their guaranty plans would cover at least the first $300,000 in promised benefits should an insurer fail. That compares with a $250,000 FDIC limit, Graham said.

The accounts offer reasonable interest rates, and “we can’t see any detrimental benefits to the beneficiaries whatsoever,” Graham said.

Beneficiaries can withdraw cash immediately if they choose, but “most are not going to do that,” Graham said. “At the very best, they will deal with that at a later time and the money will be earning interest while they decide.”

In other RAA news, Connecticut Attorney General Richard Blumenthal, who is running for Senate, called the accounts “unfair to consumers.” He has asked Connecticut Insurance Commissioner Thomas Sullivan to take immediate action to increase regulation of the products.

Sullivan argues in a letter addressed to Blumenthal and posted by the Hartford Courant that recent reporting on RAAs has been incomplete and misleading.

Improved disclosures may be needed, Sullivan writes.

“I will not, however, overreact to a misinformed, sensationalized story that did not include all the facts,” Sullivan says.

RAAs have been in place for at least 20 years, and no one in Connecticut has ever reported having a problem with the accounts, Sullivan says.


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