Thursday, September 2, 2010

Life insurance "checkbooks" -- otherwise known as Retained Asset Accounts

Picture this: You're the beneficiary on a life insurance policy of, say, your spouse. The person dies. But instead of a check for the life insurance, you get what looks like a checkbook.

The money is there anytime you want it, the company tells you. Simply write a check. In the meantime, the money will stay in an interest-bearing account.

Life insurers say that the practice allows people faced with a devastating emotional loss to take their time and make the right decisions about what to do with the money. They often offer different types of payouts, from a single lump sum to payments over the course of your lifetime, etc.

But they also tend to make money on this arrangement, by keeping some of the interest. This system, known as "retained asset accounts," has been much in the news lately.

Here at the Washington State Insurance Commissioner's Office, we've received virtually no complaints about RAAs -- and we checked back over several years -- but do feel that it's important that consumers know what these accounts are and how they work. In particular, they should know that they can cash out the entire balance immediately if they're ready to. Here's a page we built that describes how the accounts work, the types of payout options that insurers generally offer. Take a look.

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