NCOIL Life Insurance and Planning Committee Establishes Retained Asset Accounts as Life Insurance Death Benefit Default Option for Beneficiaries Bill of Rights Model Law

The National Conference of Insurance Legislators (“NCOIL”) Life Insurance and Financial Planning Committee (“Committee”) met via teleconference on September 13, 2010 to continue its review of “The Beneficiaries’ Bill of Rights (‘BBR’),” a proposed model law that would regulate the disclosure, transparency and accountability of retained asset accounts (“RAAs”) as applicable to life insurance death benefits.  The BBR provides that beneficiaries should be fully informed of their options to withdraw RAA funds. 

Whether RAAs should be a default option to receive these benefits sparked much debate among the Committee members, inasmuch as the American Council of Life Insurers (“ACLI”) proposed that the entirety of Section 4A of the BBR should be stricken.  As currently written, the Section provides that “An insurer may not use a retained asset account as a mode of settlement unless the insurer obtains the written consent of the beneficiary or, in the case of a group contract, the policy owner, prior to the transfer of the death benefit to a retained asset account.“

The ACLI’s position is that an RAA represents the best option for an insured who has not chosen a form of payment of life insurance benefits, since placement of death benefits in an RAA would allow the policyholder time to decide what to do with the proceeds.  An ACLI representative explained that the goal of the BBR should be to disclose settlement options available to an insured, not to establish RAAs as the default option.

ACLI and MetLife representatives led further discussion about the process of how a beneficiary would choose a settlement option, suggesting that the core problem is how situations in which a beneficiary does not choose a form of payment should be addressed.

Ultimately, the Committee agreed that establishing RAAs as a default option for life insurance death benefits would be feasible, as long as the insured is fully informed of this condition.

Acknowledging that this decision represented great progress in its debate, the Committee approved the following language to replace Section 4A:

“An insurer may not use a retained asset account as the mode of settlement unless the insurer discloses such option to the beneficiary or the beneficiary’s legal representative.”   

Also acknowledged was that consumer disclosure was the goal of the BBR, and that consensus on this issue will enable further details of the Model Law to be resolved.  The Committee agreed to meet again during the week of September 20 to discuss the BBR’s remaining sections.

Interested party comments on the BBR and the meeting agenda are attached for review.

Should you have any comments or questions, please contact Colodny Fass.