Unrestrained Asses

The recent retained-asset ruckus provides a textbook case of fact distortion, political grandstanding, pompous righteousness, and overblown accusations.

Retained asset accounts (RAAs) are set up by many life insurers to hold proceeds from life insurance policies for beneficiaries. They clearly profit life insurers by allowing them to hold on to the proceeds of a policy following the death of the name insured. This cushions the hit to their balance sheets of paying off on policies while giving them an opportunity to earn income on the money in the accounts while beneficiaries decide what to do with the funds.

The practice has been going on for decades, and undoubtedly benefits life insurance carriers. But they benefit consumers, too, by reducing the cost of insurance, which helps insurers to hold down the premiums they charge.

The article that started the late round of outrage at this practice hit a few political hot buttons by emphasizing its affect on a highly sympathetic group: the families of fallen soldiers. The article, which appeared in Bloomberg Magazine, suggested the practice was a scam victimizing a class of people whose loss was emotionally compounded by the altruistic sacrifice of their loved ones.

That converted an admittedly self-interested business practice into a sensational issue in which the families of members of the armed services were being victimized by avaricious financial firms.

The article even claimed that life insurers were profiting from this practice “secretly.”

Approximately 5,600 U.S. military have given their lives in Iraq and Afghanistan as of this writing, according to some counts. I don’t know how many of these carried life insurance, but surely it is a tiny fraction of the many life insurance policies that have been paid off by U.S. carriers, for whatever reason.

According to Bloomberg, quoting companies that handle RAAs for about 130 insurance companies, U.S. life insurers are holding at least $28 billion owed to beneficiaries in RAAs

Pointing to the life insurance benefits of dead soldiers, a tiny fraction of that amount, is emotional manipulation. Many Americans who are beneficiaries of life policies are being directed into RAAs.

Meanwhile, many politicians and government officials are stepping into the fray, demanding regulations on how life insurance companies handle the policies of soldiers lost in war.

The implications are that insurers need to be forced to tell families how their soldiers’ insurance proceeds are being invested.