California Tightens Consumer Protections on Retained Asset Accounts
January 27, 2012
January 27, 2012
California recently passed two bills affecting the use of retained asset accounts by life insurance companies. Retained asset accounts are a policy distribution method by which the insurance company credits a beneficiary with an account from which the beneficiary can make withdrawals with checks provided by the company.
The first bill, Senate Bill 599, accomplishes two main goals: (1) it repeals a current law which allows life insurance companies to require that beneficiaries receive their funds via a retained asset account and (2) it requires a life insurance company to obtain a written declaration from a beneficiary which outlines how he or she would like to receive the funds. If a beneficiary fails to make an election, the life insurance company may then place the funds in a retained asset account if the declaration form clearly discloses that retained asset accounts are the default form of payment.
The second bill, Senate Bill 713, requires that life insurance companies now make specific disclosures concerning retained asset accounts. The disclosures must be made prior to the utilization of a retained asset account to help the beneficiary understand the implications of that form of distribution. If the beneficiary chooses a retained asset account, the insurance company must then provide an additional agreement which details the beneficiary’s rights and the insurance company’s obligations.
Both new laws became effective on January 1, 2012. Life insurance companies who operate in California should begin planning their processes to put themselves in compliance with the new obligations relating to retained asset accounts.