Your Loved One Dies and the Life Insurance Company Sends You A Checkbook?

With the aging of America, a weak economy, scandal, and a sideways investment market, a tsunami of money Safeco Agent login is moving out from insurance and financial service company coffers. and these companies are NOT very happy about it. In fact, most are doing all they can to make sure this does not happen! Need proof? If you happen to have a 401k plan with a large balance (i.e. $500,000 or more) with one of the large financial service or insurance companies, and you try and transfer it out due to job loss or retirement, you will more than likely get a rather skilled company representative on the line doing everything in his power to try and convince you otherwise, in fact, his compensation often depends on convincing you to keep the money in-house. (Credit and Thank You to “Rollover Coach” Scott Brooks for opening my eyes on this issue)

The insurance companies, however, have a new tactic for keeping the bucks in their possession called “Retained Death Benefits.” Not only is it raising the ire of the loved ones of the deceased insured, it has also caught the eye of regulating bodies such as the Securities and Exchange Commission (SEC).

As I described in the abstract of this article, it used to be that whenever the named insured on a life insurance policy passed away, the named beneficiary presented the insurance company with proof of death (i.e. a signed death certificate) and the policy, and said beneficiary was cut a check that was either sent to him, or handed to him by the agent. Now the insurance companies don’t want to part with the money so easily, so they’ve taken it upon themselves by default to manage the money for you. Now what happens is that whenever the named insured dies, and the named beneficiary presents proof of death they are presented with a checkbook, and the death benefit is placed in an interest bearing account that is part of the insurance company’s general account, and paying a nominal amount of interest, at least for now. This account is often NOT FDIC insured, but is instead backed up by the financial security of the insurance company that is maintaining it. As far as I know, you can still write checks against it, or even write a check for the entire amount, but my particular issue with this is that the insurance company was not requested to act as the money manager by default.

Now the insurance companies are countering saying that most people are happy that they are doing this for them, and some insurance companies are assigning a representative to assist them with proper handling of a large sum of money. My reply to this is several fold. While I’m sure some people are happy to receive assistance in handling a large sum of money, as mentioned above, this was not a duty that was assigned to them by default when the insurance policy was sold. Also, more than likely the insurance company representative is not a Registered Investment Adviser, and Registered Investment Advisers, as I’ve mentioned before in my articles, are currently the ONLY ONES REQUIRED BY LAW to always act in the best interests of their clients, that is, they are the only ones with a fiduciary duty. With an insurance company representative assisting the beneficiaries of the recently departed in handling the money, I wonder how often an annuity issued by that insurance company, with accompanying high internal fees, is miraculously going to be the solution for many of the aforementioned beneficiaries? Is an insurance company representative going to be mindful of the beneficiary’s total financial picture? Will they be familiar or concerned with any of the tax implications of the receiving the money? The death benefit of a life insurance policy is typically received by a beneficiary tax free, barring the fact that the deceased’s estate did not exceed the federal estate tax amounts. However, once the money passes to this interest bearing account the taxes on its earnings, however minute, are going to be subject to income tax. If someone is not familiar with finances, and allows the death benefit to pass to the retained death benefit account, they may receive a tax bill at the end of the year that they were not counting on.

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