If you live in the state of Texas you may want to review your life insurance policy and read all the terms associated with it. According to a recent survey conducted by the Texas Department of Insurance (TDI) several life insurance companies place beneficiary payments into a Retained Asset Account (RAA) instead of directly paying the beneficiary.
In a survey of 160 life insurance companies the TDI found that around 71 of the companies offered RAA’s and over half of them use the accounts as the default policy settlement option. At the time the survey was conducted there were more than 51 thousand Retained Asset Accounts totaling over two billion dollars.
Retained Asset Accounts (RAA’s) are usually created when a life insurance company pays out proceeds from a life insurance policy. The beneficiary is given a checkbook or draft book to access the funds. The initial purpose of the RAA’s was to give grief stricken beneficiaries the time they needed to decide how to use or invest the money; while drawing interest on it and having access to pay any immediate financial needs.
The beneficiary does have the option to write one lump sum check and withdraw the funds from the account. Most RAA’s have earned between 0.5% up to 3% interest. Last year RAA’s were in a firestorm of controversy as some insurers earned up to 4.8% interest but paid the beneficiary rates as low as 0.5%. Other accusations such as fraud and mishandling of accounts were also investigated.
This brought about alerts from the FDIC and the organization of state insurance regulators and prompted the House of Representatives to approve legislature pertaining to full disclosure from life insurance companies regarding the RAA’s.
Other findings that resulted from the TDI survey include the fact that more than 12 thousand of the 51 thousand accounts have had no activity for more than three years; those 12 thousand inactive accounts are worth more than 329 million dollars, and 49 percent of the insurers holding the inactive accounts didn’t report the accounts as unclaimed property to the Texas Comptroller of Public Accounts.