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WASHINGTON BUREAU -- New York Attorney General Andrew Cuomo is looking into allegations that a common method for paying out life insurance death benefits may be unfair to beneficiaries.
Cuomo was reacting to published reports about retained asset accounts – vehicles life insurers use to hold beneficiaries’ benefits until the beneficiaries withdraw cash with checks or payment cards.
The American Council of Life Insurers, Washington, has noted that life insurers that offer retained asset accounts usually let beneficiaries choose between using the accounts and getting lump-sum payments.
Retained asset accounts can help give spouses, children or others who are grieving over the death of a loved one the ability to put off thinking about financial considerations, insurers say.
The critics cited in the published reports say life insurers earn relatively high returns on the cash and pay beneficiaries low interest rates, even though the accounts are not insured by the Federal Deposit Insurance Corp. (FDIC). In some cases, the critics say, the insurers may not have given the beneficiaries any clear indication that the funds would be held in something other than an FDIC-insured bank.
Cuomo has subpoenaed records dealing with retained asset account programs at Prudential Financial Inc., Newark, N.J. (NYSE:PRU), which runs the Servicemembers’ Group Life Insurance (SGLI) program, and MetLife Inc, New York (NYSE:MET), which runs the group life program for federal civilian employees.
The entire life insurance industry is
under investigation for the practice, Cuomo says.
Cuomo says he is launching the investigation because the practices “appear to have denied grieving military families and others of millions in life-insurance cash.”
“It is shocking and plain wrong for these multi-national life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members and have already suffered immensely,” Cuomo says. “To make matters worse, the insurance industry appears to be hoarding millions that belong to military families whose loved ones have made the ultimate sacrifice for our country.”
In related news, Mike Walcoff, acting undersecretary at the Veterans Benefit Administration, issued a statement expressing concern about the possibility that life insurers might be profiting inappropriately from servicemembers' sacrifice.
The VA is conducting a full investigation, Walcoff says.
The retained asset accounts used in the SGLI and veterans life programs are called Alliance Accounts.
“VA is deeply concerned that military and veteran families may potentially be harmed in some way by the use of the Alliance Account program,” Walcoff says.
After the probe is completed, VA will decide whether to continue the use of the Alliance Account program, Walcoff says.
Rep. Bob Filner, D-Calif., chairman of the House Veterans Affairs’ Committee, says he is outraged about reports that life insurers earn more on beneficiaries’ retained asset accounts than the beneficiaries get.
The VA employees entrusted with oversight of insurance programs for survivors “too often failed to explain all the options available for these families in their time of need,” Filner says.
The ACLI has argued that the accounts are highly secure, because they are in tightly regulated life insurance company accounts that are backed by the full strength and claims-paying ability of the life insurer.
The National Association of Insurance Commissioners, Kansas City, Mo., developed a model bulletin for the accounts in 1994, the ACLI says.