State insurance commissioners released the latest draft of a bulletin designed to provide ‘guardrails’ for retained asset accounts.
Retained asset accounts (RAAs) are accounts that are offered to beneficiaries upon the death of an insured. Often, they are one option a beneficiary has to draw upon the proceeds of an insurance policy. These accounts can be used as a default if no option is selected and in the case of insurance paid for by an employer, the employer may make the decision to use an RAA as the means to distribute death benefit proceeds.
Over the summer the issue drew a great deal of attention following an article by Bloomberg Markets. The concern focused on interest paid, whether beneficiaries understood the option, and whether the money is protected. Insurers said that the option has been helping bereaved beneficiaries for over 20 years and that state guaranty funds protect the death benefit. At least one consumer advocate says beneficiaries are better off taking the money immediately.
State regulators at the National Association of Insurance Commissioners, Kansas City, Mo., decided that the best approach is to develop a model bulletin. State insurance legislators led by the National Conference of Insurance Legislators, Troy, N.Y., which are meeting this weekend Austin, Texas, are developing a model law.
The NAIC’s draft states that the purpose of the bulletin is to “establish acceptable disclosure standards regarding the payment of life insurance benefits by means of a ‘retained asset account’.” It removes language stating that there is the potential for misunderstanding.
The proposed bulletin would require that a written explanation of settlement options be provided to beneficiaries and when appropriate, interest rates applicable to those options would be disclosed.
Among the disclosures required by the draft are:
--One draft or check may be written for the entire death benefit amount due the beneficiary;
-- Other settlement options are preserved until the entire balance is withdrawn or the balance drops below the insurer’s minimum balance requirements;
--Any fees charged must be described;
--The interest rate credited to the account;
--The interest earned on the account will be taxable; and,
--Retained Asset Account funds are guaranteed by either the Federal Deposit Insurance Corporation (FDIC) or State Guaranty Fund Associations.