Life Insurers Give Beneficiaries Checkbooks, But the Accounts Aren't FDIC-Insured
When it comes time to pay out life insurance benefits, a number of companies have found a way to do their duty and yet keep the money in their own hands, too.
They send the beneficiary a checkbook for what might seem to be a checking account. But in fact the money isn’t in a bank, and the account isn’t insured by the Federal Deposit Insurance Corp. It’s in an investment account from which the insurer profits, by paying the beneficiary only a small portion of the interest it is earning on the money, Bloomberg reports.
Such retained-asset accounts are largely unregulated—only about half a dozen states have rules addressing them—and experts express concerns that they circumvent federal regulation intended to ensure the soundness of the nation’s banking system. The accounts may also encourage grieving relatives to invest the life insurance proceeds in a manner that it not to their advantage, the lengthy article states.
“There’s more than $25 billion out there in these accounts,” says professor Lawrence Baxter of Duke University School of Law. “A run could be triggered immediately by one insurance company not being able to honor its payout. The whole point of creating the FDIC was to put an end to bank runs.”
