Nevada regulator: Death benefits may be scrutinized

(AP) - Nevada Insurance Commissioner Brett Barratt says he hasn't received any complaints about a checkbook method used by some insurers to pay death benefits.

But Barratt tells a Reno newspaper his office may review state regulations to make sure consumers know what such accounts involve.

"Nevada law already requires a full and frank disclosure so that beneficiaries can make informed choices and know what the options are," Barratt said. "People pay into these policies all their lives, and their families deserve to collect and not be misled."

Under "retained asset accounts," beneficiaries are sent checkbooks instead of a lump payment for death benefits. Such accounts allow insurers to keep proceeds of a life insurance policy in their general corporate accounts, earning investment income, while giving the beneficiary the ability to withdraw funds over time.

New York Attorney General Andrew Cuomo last month launched an investigation into the accounts, saying they generate big profits for insurers at the expense of bereaved families.

Nevada regulations require beneficiaries be offered a lump-sum payment and that insurers disclose any interest rate for the beneficiary and associated fees.

The regulations don't require the companies to reveal how much interest income they are making on the money held for the beneficiary.

This month, the National Association of Insurance Commissioners issued a consumer alert about the industry practice of holding death-benefit payments in retained asset accounts.

"You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option," the alert said.

Amy Bach, director of United Policyholders, a San Francisco-based consumer advocacy group, said the accounts are one of the many complex insurance products linked to insurance firm investments.

"There is the potential for a company to make an unfair profit with a product like this," Bach said. "Some people may be better off with a retained asset account, and some may do better with a lump sum."

Insurance industry representatives have said 40 percent of the retained accounts are still active a year after the checkbooks are issued, which means that 60 percent of beneficiaries have withdrawn all the money from the death benefit.

"There are going to be some of those accounts that people don't use, don't claim, and the company will continue to make interest on that money," Bach said.