Life Insurance Claims And Payments

Life insurance is something most people in Arlington, Dallas, Fort Worth, Grand Prairie, Mansfield, Weatherford, and other places in Texas pay for each month. Of course, the reason it is purchased is to help in a financial way those left behind. Those left behind are spouses and children nine times out of ten.
The amount of money tied up in life insurance policies nationwide is staggering. Insurance companies make lots of money on the premiums paid to them for the policies and most people understand and accept that. What bothers people is when the life insurance companies continue making money after a claim is made and that money is made at the expense of the beneficiaries of the life insurance policies.
Bloomberg ran an article on this topic on August 16, 2010. The authors are David Evans and Hui-yong Yu. The title of the article is, “U.S. Insurance Regulators Issue Consumer Alert on Death Benefits.”The article tells us that State insurance regulators, under pressure to improve disclosure of death benefit payment options, issued a consumer alert about the industry practice of retaining funds rather than paying them in a lump sum.
It is reported the National Association of Insurance Commissioners (NAIC) issued an alert saying, “You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option. While the documents you receive might look like a checkbook, it might actually be drafts, which are similar to checks, but different in some ways.”
This alert was issued after an NAIC panel met to review retained asset accounts. The regulators created the panel after Bloomberg Markets magazine reported in July that life insurance companies profit by holding and investing $28 billion owed to 1 million beneficiaries. Lets say that again – Life insurance companies profit by holding and investing $28 billion owed to 1 million beneficiaries.
These retained asset accounts let life insurance companies keep proceeds of life insurance policies in their general corporate accounts, earning investment income, while providing the beneficiary with a checkbook-like account that is not insured by the Federal Deposit Insurance Corp. (FDIC) The counter to this as expressed by a representative of the National Organization of Life & Health Insurance Guaranty Associations, is that the accounts are covered by state insurance backstops.
The alert issued by NAIC suggests that beneficiaries consider keeping benefits in an interest bearing gauranteed account rather than the accounts provided by the life insurance companies.
The FDIC has voiced concerns that beneficiaries may mistakenly believe these accounts are insured.
The article tells us that the New York Attorney General has opened a fraud investigation and subpoenaed insurers including MetLife Inc. and Prudential Financial Inc.The NAIC says, “Allowing the life insurance companies to default to retained asset accounts is just not acceptable,” “How any consumer advocate, which is what an insurance commissioner is suppose to be, could allow a default to a retained asset account raises serious concerns … about who is protecting who.”
The life insurance companies defend their practices by saying they provide ample disclosures to beneficiaries explaining retained asset accounts and give policyholders and beneficiaries the choice of a lump-sum payment.
Next, and this has got to be a joke, the companies defend their practices by saying, “Checks have a tendency to get lost” (as if the document they issue would not have a “tendency to get lost’). They also defend themselves by saying a person receiving a large lump-sum payment can leave beneficiaries “subject to predators.”
Bottom line here is that the retained asset accounts represented by the document beneficiaries receive, is of benefit to no one except the life insurance company and should be discontinued.
Without a little financial education on these “accounts” most people would never understand that it is not in their best interest to leave the life insurance proceeds in these accounts.