California Governor Jerry Brown recently signed a state law that requires life insurers to receive approval from beneficiaries before keeping death-benefit payments in retained-asset accounts. Under the new law, insurers must get a written declaration from beneficiaries on how they want to receive payments, and if the beneficiary does not make a choice, the insurer may issue a retained-asset account. This can only happen if the provider has clearly disclosed to the beneficiary its intent to do so.
A retained-asset account is a compassionate response to beneficiaries' needs, giving grieving families time to decide what they want to do with their benefits after the death of the policyholder. Last year, Bloomberg revealed that California insurance providers were profiting from holding and investing $28 billion owed to beneficiaries in retained-asset accounts.
According to the California Department of Insurance, the new law prevents insurance providers from automatically depositing the benefits of a life insurance policy into a retained-asset account, which can be hard to access by the beneficiary and are not protected by federal deposit insurance. In addition, the new law aims to prevent insurance companies from investing the funds in the retained-asset account and draw interest, of which beneficiaries only receive a portion.
California Department of Insurance Commissioner Dave Jones said the issue surrounding retained-asset accounts first came to his attention when military families complained they had not been asked permission before the life insurance benefits of those who died in the service were put into a retained-asset account.