When my father died, one of his life insurance companies took the benefits (payable to my mother) from his policy, stuck them into an account, and sent us vouchers to draw on it. It’s a way insurance companies have devised to keep their hooks in your money as long as they can.
The National Associatioin of Insurance Commissioners has now come out against that practice. From Bloomberg:
State insurance regulators, under pressure to improve disclosure of death-benefit payment options, issued a consumer alert about the industry practice of retaining funds rather than paying them in a lump sum.
“You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option,” the National Association of Insurance Commissioners said in the alert. “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 alert was issued after an NAIC panel met yesterday in Seattle to review retained-asset accounts. The regulators created the panel after Bloomberg Markets magazine reported in July that insurers profit by holding and investing $28 billion owed to 1 million beneficiaries.
We eventually closed the account.
Even though my mother was a resident of Virginia, we set my Delaware address as the mailing address, since she is not well.
Nevertheless, the company kept withholding Delaware taxes, even after being put on notice that doing so was not called for, so that, every year, my mother had to file a Delaware tax return to get the withholding back, even though she had no taxable income in Delaware.
I wrote them that, if they can’t get the withholding right, how could I expect them to get anything else right?