Saturday, July 31, 2010

Beneficiaries Can Bank Proceeds, Bypass Life Insurer Accounts

According to, some beneficiaries could vastly benefit by banking their proceeds instead of using a life insurer account. As the article explains, many of consumers are confused by ads that convince beneficiaries they cannot make investment choices on their own.

Policyholders may assume when buying life insurance that beneficiaries will get the payouts in a single bank check. That may not be the case, Bloomberg Markets magazine reports in its September issue. Insurance companies such as Prudential Financial Inc. profit by holding onto the money in their own accounts and issuing checkbooks, essentially IOUs, for survivors to access their money.

“The language they use at the time is all couched in reassuring phrases -- let me give you the security of not having to make an investment choice,” said Lawrence Baxter, professor of the practice of law at Duke University School of Law in Durham, North Carolina. “It leverages off of that state of emotional distress.”

After a loved one passes away, survivors must file a claim and provide a death certificate, according to Bob Hunter, director of insurance for the Consumer Federation of America in Washington. The insurer will then contact the beneficiaries with options for payment, which usually include keeping the money in an account with the insurance company, Baxter said.

“It’s very easy for trusted companies to mislead na├»ve customers, and life insurance companies are trusted,” said Daniel Kahneman, a professor of psychology and public affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University and a Nobel Prize winner. “The fact that they seem to be outside the regulatory reach is shocking.”

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