Retained asset accounts: when the insurer holds your payout and what to ask

A beneficiary expecting a check sometimes receives a welcome folder, a statement and a book of drafts instead. The insurer has not lost the money or locked it away. It has opened a retained asset account, which is a way of paying a death benefit by holding the money for you and letting you write drafts against the balance. This post sets that arrangement beside the two other common ways of being paid, a check and installments or an annuity, and then gives you the questions to ask before you accept the account and the steps to move the money out if you decide to.

The retained asset accounts: the checkbook you didn't ask for guide covers the history and the rules in detail. This post is the practical companion: a comparison, a short piece of arithmetic and a script for what to say. Figures are invented illustrations, and the rules differ by state, so check your state's insurance department for anything specific.

What a retained asset account is, in one paragraph

When a claim is approved, the insurer deposits the death benefit into an account in the beneficiary's name on its own books. It credits interest at a rate it sets and sends a draft book. A draft looks like a check and a bank processes it, but it is drawn on the insurer's arrangement, not on an insured bank account. One draft for the full balance moves all of the money out. The account is a promise by the insurance company, not a deposit at a bank, so it does not have federal deposit insurance. Protection comes from the state guaranty system, within limits that vary.

Three ways to receive the money, side by side

Two points in the table deserve more words. First, the "Protection" row is where the retained asset account differs most from a check. Money in an insured bank account is covered by federal deposit insurance, at least $250,000 per depositor at each insured bank, and a larger sum can be spread across banks or ownership categories. Money in a retained asset account is covered, if at all, by your state's life and health guaranty association, whose limits depend on the state. The common baseline protection for death benefits and cash values is $300,000 and $100,000 per insured life per insurer, with higher limits in some states, though how a state treats a retained asset account can differ. The state guaranty association coverage lookup and the state life and health guaranty associations guide explain where to look.

Second, the "Reversible?" row matters because people often confuse the account with an installment plan. It is not. You are not committing to anything by accepting the account, and you can walk away from it whenever you like.

Who each option tends to suit

None of these is a recommendation. They are descriptions of situations in which each tends to fit.

A retained asset account can suit someone who needs a few weeks to think before moving a large sum, who wants the money available immediately and who finds the rate competitive. It can also suit a person who does not yet have a safe place to put a very large check. It suits few people for years.

A check or electronic transfer suits someone who has a safe insured account ready, who wants to compare rates across banks and who values the flexibility to move the money wherever they choose. It is the most common choice.

Installments or an annuity suit someone who wants the structure imposed by someone else, perhaps because of inexperience or pressure, or who needs lifetime income. The trade-off is that most arrangements cannot be undone. The decision list in lump sum or installments: a decision list for a newly named beneficiary helps weigh these.

The cost of leaving money there: a short illustration

Say a beneficiary receives a $400,000 death benefit and the account credits a rate of 1 percent a year. An insured savings account nearby pays 4 percent a year. Both rates are invented for the illustration and do not describe any company or bank.

• Interest at 1 percent for a year: $400,000 × 0.01 = $4,000
• Interest at 4 percent for a year: $400,000 × 0.04 = $16,000
• Difference over a year: $12,000
• Difference over three months: about $3,000 ($12,000 × 3 ÷ 12)

If the rates were the other way around, with the account paying more, the answer changes, which is why the first step is to find out the real rate. Do not rely on memory of a rate you heard on the phone; read it in the account disclosure and on the statement.

The protection limit matters as well. In the same example, the $400,000 exceeds the $250,000 federal insurance limit at a single bank, so an owner who wants full insurance in banks would split the deposit among institutions or use more than one ownership category. At the insurer, a guaranty association's cap is also a limit, though the cap is measured per insured life per insurer and varies by state. The point is that neither option is risk-free and both have limits you should know.

Questions to ask before accepting the account

Ask these before you use the draft book, and ask them in writing so the answers are on file.

1. What is the interest rate today, and how is it set? Is there a guaranteed minimum? How often can it change, and will you be told?
2. Are there any fees? For drafts, statements, stop-payments or closing the account?
3. Can I withdraw the whole balance with one draft? Is there a limit on the amount of a single draft or on how many drafts a month?
4. Are my other settlement options still available while the money is in the account? Can I still choose installments or an annuity later?
5. What protection applies? Which guaranty association would cover this account, and up to what amount?
6. What happens if I do not use the account? After what period is it treated as inactive, and when would it be reported to the state as unclaimed property?
7. How are statements delivered? If by mail, to what address? Can I add an email or a second contact?
8. How will interest be reported for tax? When will the Form 1099-INT arrive?
9. Can you send a check instead? If I asked for a lump sum by check, why was an account opened, and can the payment be reissued?

If the welcome kit already answers some of these, good. Record the answers anyway, with the date and the name of the person.

A hypothetical case: Maria and the draft book

Say Maria, 47, files a claim as the sole beneficiary of her late brother's $180,000 group policy through his employer. She ticked "lump sum" on the form. Four weeks later, a folder arrives with a draft book and a statement showing $180,000 plus a small amount of interest. There is no check.

Maria does not need to panic, and she does not need to rush. She can take these steps over a week.

1. Read the folder. She finds the rate, a line saying one draft can withdraw the full balance and a toll-free number.
2. Check the claim form copy she kept. She sees that lump-sum payment was described as "payable to you by draft in a retained asset account," which was in the fine print. That explains why no check came.
3. Call and then write. She phones to ask whether a check can be sent instead. The representative says it can be done, but only by writing a draft to herself. She confirms the same in a letter the same day and asks for the rate and fee information in writing.
4. Decide. The $180,000 is below the $250,000 federal deposit insurance limit at one bank, so she can open one insured account at her credit union in her own name. She compares the credit union's rate with the account's and finds the account's rate lower.
5. Move. She asks the insurer to wire the balance. It does so, and she keeps the final statement showing zero.
6. Tax. In the new year a Form 1099-INT arrives for the small amount of interest credited. She gives it to her tax preparer.

Total time: about two weeks. Total cost: none, apart from the interest she gave up on a few weeks at the lower rate. If the account's rate had been higher than the credit union's, she could reasonably have left the money there while she planned, with a date in her calendar to review it. What mattered was that she knew the choice was hers.

If you have already written drafts

Some beneficiaries use the draft book for funeral bills, a first mortgage payment or an immediate family expense before they realize the account is not a bank account. That is fine. Drafts drawn on the account are a legitimate way to access the money, and writing a few does not commit you to anything. Keep the stubs, check the running balance against the statement and make sure each draft cleared for the amount you wrote. If the balance is not what you expect, ask the insurer for a transaction listing.

Some history that explains the questions

Retained asset accounts became controversial around 2010, when press reports described beneficiaries who asked for a lump sum and received a draft book. Regulators responded. The NAIC adopted a sample bulletin in December 2010 describing disclosures that insurers should provide, and New York later directed life insurers to pay lump sums by check unless the beneficiary specifically chose an account. The result is a patchwork: practice varies by state, by insurer and by whether the policy is individual or part of an employer group plan. That variation is why the questions above are worth asking and why your claim form's default payment method deserves a careful read.

How to move the money out

If you decide the account is not for you, the steps are simple. Do them in order.

1. Confirm the balance. Compare it with the benefit and any interest owed for the time between the death and the payment. If it differs, ask for an explanation before moving anything.
2. Choose the destination first. Open an insured account at a bank or credit union, or decide which accounts you will use if you are splitting the money. Check that the new account has the right owner names.
3. Pick the method. You can write one draft for the full balance payable to yourself and deposit it, or ask the insurer to send a check or an electronic transfer. A transfer is often cleaner for a large sum, since it leaves a record.
4. Tell the bank what to expect. For a very large deposit, ask the bank how long it will hold the funds before they are available. A bank may place a hold on a large draft.
5. Keep proof. Save the final statement showing a zero balance, the draft or transfer record and the interest figure for tax.
6. Close the account in writing, and ask the insurer to confirm that it is closed so no later statements, fees or inactivity notices follow.
7. Watch for the tax form. If interest was credited, a Form 1099-INT should arrive the following year. Keep it with your tax records.

If the insurer will not reissue the payment or explain the account, you can file a complaint with your state insurance department. how to file a complaint against a life insurer describes the process.

If you are leaving it for a while

Holding the money briefly can be reasonable. Put a date on the calendar for when you will decide, and check three things on that date: the current rate, how your balance compares with the protection limit and whether your plan has changed. Keep your address and phone current with the insurer, and write a draft occasionally if you are leaving it for a long time, because inactivity is a reason accounts end up reported as unclaimed. The guide to unclaimed life insurance money and state unclaimed property explains how to search if an account from an old claim has gone quiet.

A note on government and group programs

Some government and employer programs have their own default and their own forms, and the choices listed on the form can differ from an individual policy's. For example, the VA's claim form for servicemembers' group life insurance has been revised over the years to spell out the options, including an account, a check or transfer, and monthly installments. Read the form that came with your claim rather than assuming the same options apply as for an individual policy. The life insurance claim checklist tool is helpful for keeping track of which form you have.

Key takeaways

• A retained asset account holds your death benefit at the insurer and lets you withdraw it by draft. You can usually take the whole balance with one draft at any time.
• It is not FDIC-insured. Protection comes from your state guaranty association, within limits that vary, while a bank deposit has federal insurance up to its own limit.
• Interest credited to the account is taxable and reported on Form 1099-INT; the death benefit itself is generally income-tax-free.
• Ask in writing about the rate, fees, protection, inactivity and whether a check is available, and compare the rate with insured alternatives.
• To move the money out, choose the destination first, withdraw the full balance, keep the records and ask the insurer to confirm the account is closed.