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Background informationA Retained Asset Account is an account whose initial balance is a life insurance or annuity death benefit and that essentially operates like a checking account. Beneficiaries of life insurance death benefits may choose to take the money in several ways (in industry jargon, “settlement options”). Before 1984 the common (and default) choice was a check for the entire amount due to the beneficiary. However, understandably—considering the circumstances in which this money became available—many beneficiaries did not want to deal with death-related financial matters immediately. Sometimes they just put the check in a drawer and forgot about it or, if they cashed it, were sometimes unable to manage such large sums of money effectively and found that it quickly dissipated. As a result, beneficiaries looked to life insurers to create a way for them to keep their money safe and available until they were better able to use it. The new settlement option, established in 1984 and generally known in the industry as a Retained Asset Account, meets these goals. In effect, it creates a checking account whose initial balance is the death benefit. The principal and a minimum rate of interest are both guaranteed by the insurer. Additional interest is credited to the account at a rate declared by the insurer; the credited rate is comparable to that paid in similar accounts offered by banks and money-market mutual funds. Beneficiaries get free checks and periodic reports on the status of their account. Frequently Asked QuestionsIs a retained asset account in an FDIC-insured bank?No. As with other life insurance settlement options, the money stays with the life insurer. However, the money is protected and the beneficiary has full access to the funds at all times. The money is as safe, perhaps even safer, with the insurer than with a bank, even taking into account FDIC insurance. That is because: (a) historically, many more banks have failed than insurers; and (b) there is a state guaranty fund system that insures at least as much as or more than the FDIC does. In many states the insurer guarantees are up to $300,000 (in some states as high as $500,000), whereas the FDIC insurance limit is $250,000 (recently raised from $100,000). No one has ever lost a cent in a retained asset account, but the same cannot be said for bank accounts that exceeded the FDIC limits or most other investment accounts. Moreover, as long as the death benefit remains with the life insurer, it is beyond the reach of the beneficiary’s creditors. Once the money is released by the insurer, the creditor protection no longer applies. A bank’s name may be associated with the account because some life insurers use banks to administer the account; however this does not mean that it is in an FDIC-insured bank. How long must the money stay with the insurer?The money can be withdrawn immediately by writing a check for the full amount, or left in the account for as long as the beneficiary wants. The death benefit (but not the credited interest) is income-tax exempt; however, tax considerations might affect when the beneficiary might most advantageously withdraw the money. Don’t insurers earn a higher rate on their investments than they credit on these accounts? If so, why don’t they credit the higher rate to beneficiaries?Insurers generally do earn a higher rate on their investments than they pay on these accounts, but still pay an interest rate that compares favorably with other accounts of similar instant liquidity. The insurer also bears all the investment risk and provides a guaranteed positive rate of return irrespective of market conditions. In other words, even if the insurer were to lose money on its investments, the owner of the retained asset account would still earn interest. Some of the “spread” between the rate earned by the insurer and that paid on the retained asset account is used to cover the expense of providing this account. In some cases the difference between the insurer’s overall rate and the credited rate is small, because some insurers credit interest based on prevailing rates at the time the death occurred (which might be considerably higher than rates prevailing today). This sounds like an attractive account. Once it’s created, can I add money to it?The only money that can be added is money that comes from another life insurance death benefit from the same insurance company. This is not a deposit account like those provided by a bank or money market mutual fund. In the past, life insurance policy claims were handled simply enough. Once the life insurance company received the proper documents, it sent a check to the beneficiary, who cashed or deposited it at his bank and used the proceeds as he wished. Today, it’s more likely that a life insurance beneficiary—we’ll call him Charley—would receive something that looks like a checkbook, rather than a single check made out to him. The life insurance company, acting as a financial institution, tells Charley that funds have been set aside for the face value of the insurance policy’s death benefit. Charley could use the checkbook to write checks—called “drafts”—on the account, and the insurance firm would honor those checks just as a bank would. It’s true that Charley would not be allowed to deposit more money into this account; he could only withdraw funds by writing checks. Also, he would not be able to write a check for less than $200. On the other hand, the money that Charley left in the account would collect interest every month. Charley now owns a retained asset account. A win-win situation?The insurance industry believes that its new reliance on retained asset accounts benefit both consumers and life insurance companies.
The hidden risks most consumers don’t recognizeBeginning in the 1980s, federal regulations on financial institutions were relaxed to allow banks and insurance companies to have certain overlapping functions. Despite this change in the rules, life insurance companies are not banks. The checkbook you are issued for a retained asset account doesn’t mean quite the same thing as your checkbook for a consumer checking account at your neighborhood commercial bank. Because of these differences, there are several important ways that the money in a retained asset account may be at risk:
Is legal action necessary?Some state governments are concerned that consumers do not understand their money may be less safe in retained asset accounts. Other states are outraged that big insurance companies make huge profits from the money they hold in retained asset accounts. Legislation is pending in several states to regulate these accounts or forbid them altogether. Additionally, there have been some lawsuits filed against life insurance carriers who have issued beneficiaries retained asset account checkbooks, rather than lump-sum payment checks. These lawsuits have alleged that insurance companies failed to fulfill the requirements of some group life insurance contracts, and that they failed to disclose the risks involved in retained asset accounts. So far, the insurance industry has fought off these lawsuits. If you have a question about retained asset accounts, or if you believe a life insurance company is taking advantage of you as a beneficiary, you owe it to yourself to contact Life Insurance Law at (215) 531-7961. Our network of life insurance benefit attorneys extends across the United States. We have extensive experience fighting the big insurance companies and insurance industry lawyers. We can negotiate with the insurance company or with state regulatory agencies to get you the case settlement that you deserve. Best of all, we never charge you a legal fee unless we can get you a financial recovery. Call today to get the peace of mind you need. If you have questions, our firm can provide all the information in your free consultation. Call us toll-free today to seek the full life insurance benefits you deserve. (215) 531-7961 About Life Insurance LawyersLife Insurance Law, LLC is a nationwide network of attorneys who work with clients to recover denied or delayed life insurance claims. We created this network to people get the benefits they deserve, even after their life insurance claims were denied or delayed. What is a BNY Mellon account?The BNY Mellon Brokerage Account — with a roster of comprehensive tools and unique services — is a full-service brokerage account designed to help you confidently and effortlessly take control of your financial future.
What is BNY Nexen?NEXEN is a financial services platform developed by BNY Mellon. It features a web application, APIs, and data analytics tools to allow financial services clients to access the BNY Mellon's services, such as asset custody, broker-dealer services, and alternative investment services.
Is Bank of New York the same as Bank of New York Mellon?Fast Fact. BNY Mellon was established (as Bank of New York) in 1784 by Alexander Hamilton and later became the first company to be listed on the New York Stock Exchange.
Does Mellon bank still exist?Mellon Financial Corporation was an investment firm which was once one of the world's largest money management firms.
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