Retained-asset accounts – a product that allows insurers to profit from beneficiary death benefits by placing the funds in interest-bearing accounts – have become the new tainted investment of the day.
Just days after the Federal Deposit Insurance Corporation announced that life insurers should disclose more information about retained-asset accounts to their customers, the National Association of Insurance Commissioners issued a consumer alert on the products.
Last month, New York Attorney General Andrew Cuomo subpoenaed Prudential Financial, MetLife and several other insurers as part of an investigation into possible fraud in the life insurance industry.
The focus of Cuomo’s investigation concerns whether consumers thoroughly understand the payout options associated with retained-asset accounts.
A retained-asset is considered a temporary repository of funds. Instead of paying out a lump-sum upon the death of a policyholder, insurers keep the money in their own general fund. By keeping the money, insurers are able to earn a higher return on the funds than they pay out in interest.