On December 12, 2011, the Illinois Department of Insurance issued a revised bulletin (the “Bulletin”) regarding the use of retained asset accounts by life insurance companies. Retained asset accounts, for purposes of the Bulletin, are mechanisms by which an insurer or entity acting on behalf of an insurer may settle proceeds payable under a policy by depositing such proceeds into an account, and retaining them in accordance with the terms of supplementary contract not involving annuity benefits. Note that amounts contained in the retained asset account may be withdrawn by check or draft.
According to the Bulletin, life insurers must provide beneficiaries with a written description of the settlement options available under the policy, and notify such beneficiaries that interest will accrue at a rate of 10% in connection with retained asset accounts. The insurer must also furnish the beneficiary with certain disclosures before the retained asset account mode of settlement is selected (if optional), or established (if not optional). These disclosures include the following, among other things:
- The full benefit amount is paid by delivery of the draft book or check book, and one draft or check may be used to access the entire amount, including interest.
- Whether other available settlement options are preserved until the entire balance is withdrawn.
- Information about the account services provided, and fees charged, if applicable.
- The frequency of statements showing account activity.
- The interest earned may be taxable.
- Retained asset account funds are not guaranteed by the Federal Deposit Insurance Corporation, but are guaranteed by the State Guaranty Associations.
- A description of the insurer’s policy regarding retained asset accounts that may become inactive.
The Bulletin revises a previously issued bulletin from March 2011, with contained certain inaccuracies. In particular, it clarifies that the interest on retained assets accrues at 10% rather than 9% (as stated in the March bulletin), among other things.