by John Darer CLU ChFC MSSC RSP CLTC
The New York Attorney General is conduction an investigation into how life insurance companies handle death benefits. It has subpoenaed a number of companies including Northwestern Mutual, Prudential Financial, Inc, MetLife, inc., New York Life Insurance Company, Genworth Financial and Unum Group.
The investigation appears to be focused on so-called "retained asset accounts".
When an insured dies, the beneficiaries have a variety of settlement options with the life insurer. Among them they can:
- Take the proceeds as a lump sum, with interest paid from date of death to date of settlement
- They can take proceeds over time as an annuity in any number of payment designs.
As a former Northwestern Mutual agent I vividly recall when the company introduced its Access account in the late 1980s. NML gave a check book to the beneficiary with up to $25,000 against the policy proceeds so that the beneficiary could pay for funeral costs and other immediate expenses without the undue emotional pressure that comes with financial planning during a transition. It buys time.
The American Council on Life Insurers has said that "retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one. Not surprisingly financial matters may not be the first thing on their minds, and retained asset accounts provide a secure place for life insurance policy proceeds.
An August 3, 2010 Milwaukee Journal quotes Northwestern Mutual spokesperson Jean Towell as saying "
"It's rather perplexing or hard to see how beneficiaries would be harmed in any way by having multiple choices open to them"
The Milwaukee Journal also reported August 3, 2010 that Wisconsin Insurance Department said that it had not received any complaints about retained asset accounts at NML but is reviewing what NML and others tell consumers about their options.
Prudential Financial issued a press release issued on July 29, 2010 that was delivered to its sale force and specifically to members of the structured settlement distribution network on or about August 6, 2010. The gist of the release discusses the vulnerability of beneficiaries to abusive sales tactics and that a special account ("Alliance Account") takes the pressure off beneficiary to do something with the money- which sudden money practitioners know may lead to imprudent financial decisions as well as a timely announcement concerning its talks with the Department of Veterans Affairs in connection with the Servicemembers Group Life Insurance Program that Prudential administers..
Members of the structured settlement profession are cautioned to exercise due care not to circulate the Prudential press release to any prospective purchasers of insurance, including, but not limited to, attorneys who might structure their attorney fees using an annuity or claimants and plaintiffs in personal injury cases. This is because the press release includes the following:
"On the subject of safety, while our Alliance Accounts are not FDIC insured (a fact that is fully disclosed in our material), these accounts are protected by State Guaranty Funds that provide protection of at least $250,000 in most states".
In a January 26, 2009 a published opinion of the New York State Insurance Department obtained by this author, the regulator concluded that a statement that " state insurance guaranty funds provide an additional levels of protection for future structured settlement recipients" which is aimed at New York residents, runs afoul of the Insurance Law". The opinion was sought after a structured settlement trade association brochure, containing the aforementioned language, was published by that association and distributed to its members with intent that its members use it with the public to assuage fears during the 2008-2009 financial crisis. Few wanted to heed this author's pre publication warning that there might be a problem. Ergo...Download Opinion About Use of LIGCNY in Solicitation of Structured Settlement Annuities 1-26-2009.
The New York Insurance Law clearly states:
S 7718. Prohibited advertisement of the corporation in sale of
insurance. No person, including an insurer, agent or affiliate of an
insurer and no broker shall make, publish, disseminate, circulate or
place before the public, or cause directly or indirectly, to be made,
published, disseminated, circulated or placed before the public, in any
newspaper, magazine or other publication, or in the form of a notice,
circular, pamphlet, letter or poster, or over any radio station or
television station, or in any other way, any advertisement, announcement
or statement which uses the existence of the corporation for the purpose
of sales, solicitation or inducement to purchase any form of insurance
covered by this article, provided, however, that this section shall not
apply to the corporation or any other entity which does not sell or
solicit insurance, or to prohibit the furnishing of written information
in a form prepared by the corporation and approved by the superintendent
by a member insurer directly to a policyholder in response to a written
Other states have similar prohibitions.