When a loved one passes away and you are the one to make all the decisions, there are moments in the grieving process that create confusion, especially when it comes to finances. Initially, life insurance policies provide for a single payment of the death benefit, but now many insurance companies are offering a temporary account of that money. Like a checking account, you can draw on it as you need. The National Association of Insurance Commissioners (NAIC) suggests you consider the following information if a life insurance company offers you a Retained Asset Account as an option to a single payment.
This is a temporary account that gives you time to think about the long-term needs. Because your emotions are running high at the time of someone’s death, insurance companies have found that the money is spent quickly without really thinking about the best way to manage. The use of a RAA can allow you to access the entire amount but while in this account, it will earn interest. Choosing different pay options may offer a higher rate of interest.
· A Single Payment, also known as a “Lump Sum” Payout in which you will receive the entire amount.
· Installment Payout for Fixed Amount or Period: Through this option, you may choose to receive either: a fixed monthly, quarterly or annual payment amount selected by you until the proceeds are depleted; or a fixed monthly, quarterly or annual payment amount determined by your insurer for a fixed period of time that you select.
· Installment Payout for Lifetime: Through this option, you will receive fixed monthly, quarterly or annual payments determined by your insurer for the remainder of your life.
· Interest Only Payout: Through this option, proceeds are left with the insurance company and you will receive interest payments which the insurer will pay you on a monthly (quarterly, annual) basis. If you choose this option, be sure you understand if the interest rate is fixed or variable and if there are any guaranteed minimums or maximum limits. Proceeds are passed on to your beneficiaries upon your death.
The NAIC serves the needs of consumers and the industry, with an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace. For more consumer information, visit insureUonline.org.
Want to learn more about life insurance? Read our article The Most Frequently Asked Life Insurance Questions.