Recently, articles on WSJ and Bloomberg have reported that insurance companies are putting beneficiaries’ death benefits into interest-bearing checking accounts instead of paying out the life insurance proceed – and they’re giving the industry another unmerited black eye.
But when unwarranted attacks like these occur, instead of becoming defensive, we should see them as a signal for us to do a better job communicating our practices.
We work in a complicated industry with complex transactions and products that require experts, such as yourself, to interpret the products for consumers. It’s true that many companies automatically put life insurance proceeds in an interest-bearing checking account, but if the beneficiaries select a check for the proceeds, it is paid out as soon as the paperwork is processed and approved, sometimes in a matter of days. In fact, most beneficiaries request lump-sum payouts. According to Genworth, about 90 percent of their beneficiaries choose this option.
Those who don’t request a lump-sum payout are often individuals who need time after a death of a loved one before they can begin thinking about how they will manage the proceeds. For this reason, they choose to leave it in an automatic life insurance proceeds account, where the funds remain liquid and available to them when they are ready to make sound financial decisions.
To the best of my knowledge, no beneficiaries have lost their proceeds when they were held in an insurance company checking account because of financial mismanagement. In addition, these dollars are secure and guaranteed by the state life and health insurance guaranty associations.