Retained asset accounts (RAA) are in the regulatory hot seat, with critics of the vehicles calling on life insurance companies to improve disclosure policies and beef up transparency of the products to clients.
RAAs are interest-bearing accounts used by life insurers to hold death benefits of beneficiaries. Instead of providing a lump-sum payment, beneficiaries are paid via a “checkbook” supplied by the insurer. The checks themselves are draft-account checks, however, and cannot be used as easily as standard bank-account checks.
Bloomberg first reported on the issue of retained asset accounts earlier this summer, bringing to light the fact that RAAs allow insurers to earn high returns – 4.8% – on the proceeds of a life insurance policy. Meanwhile, beneficiaries get peanuts with interest rates as low as 0.5%.
On top of that, retained asset accounts are not insured by the Federal Deposit Insurance Corp. (FDIC).
Advocates of retained asset accounts say the products give beneficiaries additional time to decide what to do with their money.
Recently, retained asset accounts were the focus of subpoenas issued by New York Attorney General Andrew Cuomo to Prudential Financial and MetLife. Now, Cuomo’s office reportedly has expanded the investigation to include other insurers. According to an Aug. 31 article by the Indianapolis Star, one of those insurers is Carmel-based CNO Financial Group, formerly known as Conseco.
Currently, only six states have regulations pertaining to retained asset accounts. However, the regulations don’t mandate that insurers reveal how much interest income they make on the money held for the beneficiary.
In August, the National Association of Insurance Commissioners issued a consumer alert about retained asset accounts.