Magazine article Medical Economics

Life Insurance Benefits: This Way, You Write the Check

Magazine article Medical Economics

Life Insurance Benefits: This Way, You Write the Check

Article excerpt

Instead of handing over a lump sum, many companies now settle claims with a checkbook.

It's not every day that you open your mailbox and find a checkbook linked to a six-figure account, but that's what happened recently to a middle-age woman whose husband died unexpectedly.

The checkbook, tied to the death benefit on her spouses life insurance policy, reflects a growing trend in how beneficiaries are paid. Retained-asset accounts, as they're known in the industry, aren't new-MetLife pioneered the concept in 1984-but they're becoming much more common. Some insurers even send checkbooks in lieu of lump-sum payouts for distributions as small as $5,000.

Although insurers say these retained-asset accounts aren't intended to be long-term depositories, beneficiaries leave as much as 15 percent of the money on deposit for at least a year. These accounts currently hold billions of dollars, earning insurers millions in profit each year

Insurers also may like these accounts because they make it easier for the companies to pitch their investment products-usually annuities and load mutual funds. "They aren't stupid:' says Kathleen Stepp, of Stepp & Rothwell, a financial-planning firm in Overland Park, KS. "They know that once the money leaves, it's probably not going to come back" The beneficiary may find better investments elsewhere, though.

Insurers are making the checkbook option tough to sidestep. Indeed, one proof-of-death form we examined requires any beneficiary who doesn't want the checkbook to cross out the section that calls for it and attach a request for "some other method of payment available under the policy. …

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