RETAINED ASSET ACCOUNTS AND LIFE
What Consumers Need to Know About Life
Insurance Benefit Payment Options
The death of a spouse, parent, child,
partner or other loved one is a difficult time. In addition to the
emotional stress present during the weeks, months or years following a
death, financial burdens may also arise. Life insurance is intended to
assist with these financial burdens. While life insurance policies
provide for a single payment of the death benefit, policies may also
offer other payout options that are intended to fit your needs and
those of your family. The National Association of Insurance
Commissioners (NAIC) suggests you consider the following information if
a life insurance company offers you a Retained Asset Account as an
option to a single payment.
What is a Retained Asset Account?
A Retained Asset Account (RAA) is a temporary repository
of funds. The account’s function is to give you (the beneficiary)
the time you need to consider all of the financial options available.
The payment of the total proceeds will be accomplished by delivery of a
“checkbook.” While the documents you receive might look
like a checkbook, it might actually be drafts which are similar to
checks, but different in some ways.
The use of a RAA provides you the flexibility to make
the right decision regarding your long-term financial needs while
earning interest on the life insurance proceeds. You can choose to
write one check or draft to access the entire proceeds at any time.
However, you may be able to earn a higher rate of interest on the life
insurance proceeds if you select a different payout option.
RAAs are generally provided as an option to the
beneficiary, however for some group policies, the employer might have
agreed that a RAA is the only way life insurance claims are settled. If
that is true in your case, you may write a check or draft to transfer
the remaining funds as you see fit.
Key Questions to Ask and Issues to Understand
If you are considering the option of a RAA or are
provided one to settle a death claim, here are some important issues to
- What interest rate will be paid on the proceeds, how
will the interest rate be determined and how will the interest amount
be credited to the account?
- Will the proceeds be held in a bank, which would make
the proceeds FDIC insured up to the limit permitted by law?
- Will the proceeds be held by the insurer, which would
make the proceeds subject to coverage by a state guaranty fund should
the insurer fail?
- Will the proceeds be held in a bank checking or an
insurer draft account and what banking services, if any, will be
- What services will be provided at no charge and what
services will involve a fee?
Other Payout Options
One size does not fit all and this is why various payout
options are offered. If you choose to initially receive life insurance
proceeds through a RAA, other payment options should be preserved until
the entire balance is withdrawn or the balance drops below a certain
dollar amount. Other payout options may include one or more of the
- A Single Payment, also known as a “Lump
Sum” Payout: Through this option, you will receive the
entire proceeds in one payment.
- Installment Payout for Fixed Amount or Period:
Through this option, you may choose to receive either: a fixed monthly,
quarterly, or annual payment amount selected by you until the proceeds
are depleted; or a fixed monthly, quarterly, or annual payment amount
determined by your insurer for a fixed period of time that you select.
- Installment Payout for Lifetime:
Through this option, you will receive fixed monthly, quarterly, or
annual payments determined by your insurer for the remainder of your
- Interest Only Payout: Through this
option, proceeds are left with the insurance company and you will
receive interest payments which the insurer will pay you on a monthly
(quarterly, annual) basis. If you choose this option, be sure you
understand if the interest rate is fixed or variable and if there are
any guaranteed minimums or maximum limits. Proceeds are passed on to
your beneficiaries upon your death.
- If you are the beneficiary of a life insurance
policy, contact the insurance company in a timely manner after the
death of the insured. Be prepared to provide a death certificate to
initiate the claims process.
- Always obtain the necessary contact information for
your insurance company, such as a phone number and address, where you
can obtain additional information and answers to your questions.
- Make sure you read and understand all information the
insurance company sends to you.
- Assess your financial needs and tax status.
- Take your time in determining the right payout option
for you. You should not be pressured to act quickly.
- If you need help, consult a trusted financial or tax
If you have questions about RAAs or other life insurance
proceed options, contact the Arkansas Insurance Departement
Consumer Services Division
at (800) 852-5494 or (501) 371-2640.
Get smart about your insurance needs! For more
information about auto, home, life and health insurance options –
as well as tips for choosing the coverage that is right for you and
your family – visit www.InsureUonline.org.