California has enacted into law two bills tightening consumer protections on retained asset accounts—one of which repeals current law, which state regulators say allows insurers to require beneficiaries to receive their life insurance proceeds only through an RAA.
This law, S.B. 599, requires life insurers to obtain a beneficiary’s written declaration as to how he or she wants to receive a benefit payment.
Gov. Jerry Brown signed the bill into law Oct. 2. It passed the legislature Sept. 1.
State Insurance Commissioner Dave Jones said he asked the state legislature to pass the law because while RAAs appear similar to a checking account, they have certain features that can make it difficult for a beneficiary to access the funds and RAAs are not protected by federal deposit insurance.
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Although RAAs resemble checking accounts, retailers will not readily accept RAA drafts, and some RAAs have minimum draft requirements, Jones said.
S.B. 599 requires an insurer to try to get a written declaration from the beneficiary prior to depositing claims money into a retained asset account.
But, if a consumer failed to make a decision, the bill would let an insurer set up an RAA if the declaration form clearly disclosed that the default benefits payment mechanism was an RAA.
The bill also would require insurers to provide beneficiaries with RAA-related disclosures so that beneficiaries would have the information needed to make informed decisions about the RAA option.
Jones said he supported S.B. 599 because “insurance companies invest the funds in the RAA and draw interest, only a portion of which is paid to the beneficiary, so beneficiaries are deprived of earning the fullest investment return on the benefits.”
The second bill, S. 713, requires insurers to make specific disclosures to beneficiaries of life insurance policies regarding RAAs before the funds are placed in RAAs. It was signed by Gov. Brown on July 26. It passed the legislature July 11.
This law is based on the NAIC model bulletin drafted last year. It would require insurers to disclose various important facts and features relating to RAAs, such as how a beneficiary may access the entire account amount, interest rate information, how the account funds are guaranteed, and how beneficiaries can learn about their guaranteed limits of coverage.