WASHINGTON BUREAU — The National Conference of Insurance Legislators has unveiled a proposed model law that would impose new disclosure and process standards on retained asset account providers.
The proposed “Beneficiaries Bill of Rights” legislation would no longer allow insurers to use an RAA as a default option for paying life insurance death benefits. Most life insurers that have RAA programs now use the RAA benefits payment method as the default option.
Before an insurer could provide an RAA for a policy beneficiary, it would have to get written consent from the beneficiary, or, in the case of a group contract, the policy owner, before transferring the proceeds of a policy to an RAA.
Before an insurer could put money in an RAA, the insurer would have to tell the beneficiary that other options include the immediate lump-sum payment of all proceeds.
RAAs are accounts life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw the cash using checks, payment cards or other means.
Critics say life insurers earn high returns on the cash and pay beneficiaries low rates without giving the beneficiaries adequate notice that the cash is held in something other than a bank account insured by the Federal Deposit Insurance Corp. (FDIC). Supporters say RAAs give grieving beneficiaries a chance to deal with their emotions before addressing financial concerns, and that funds guaranteed by an insurer may be safer than bank deposits insured by the FDIC.