Life Insurance and the Retained Asset Account

It should come as no surprise that the passing of a spouse, child, parent, or other loved one proves for a difficult time.

Not only do grieving relatives have to deal with the emotional loss of a loved one, but also the financial repercussions of losing that individual.

For those unaware, while life insurance policies offer a single payment of the death benefit, policies can also offer other payout choices that are slated to fit one's needs and those of their family.

In the event a life insurer offers you a Retained Asset Account (RAA) as an option to a single payment, keep several things in mind:

First, the RAA is a temporary repository of funds. The function behind the account is to give you (the beneficiary) the time needed to consider all of the financial options available.

The use of a RAA offers the flexibility to make the correct decision regarding one's long-term financial requirements while earning interest on the life insurance proceeds. Individuals can select to write one check or draft to access the entire proceeds at any time. Keep in mind it is possible to earn a greater rate of interest on the life proceeds should you choose a different payout option.

In the event you are thinking about getting a RAA or are provided one in order to settle a death claim, you should consider a number of different things.

First, what interest rate will be paid regarding the proceeds, how will the interest rate be decided, and how will the interest figure amount be credited to the account?

Secondly, will the proceeds be kept in a bank, which would make the proceeds FDIC insured up to the limit allowed by law?

Another item to look at is will the proceeds be held by the insurance company, which would make the proceeds subject to coverage by a state guaranty fund should the insurer go under?

Also, will the proceeds be kept in a bank checking or an insurer draft account and what banking services, if any, will be offered?

Finally, what services will be provided at no charge and what services will constitute a fee?

Individuals can consider a single payment, which is also known as a "Lump Sum' Payout. With this option, the individual will obtain all the proceeds in one payment.

There is also the installment payout for fixed amount or period. With this option, individuals can select to receive either: a fixed monthly, quarterly, or annual payment amount they select until the proceeds are gone; or a fixed monthly, quarterly, or annual payment amount decided by one's insurer for a fixed period of time that they select.

Individuals also have the option of an installment payout for lifetime, whereby they will receive fixed monthly, quarterly, or annual payments decided by their insurer for the rest of their life.

Another option is the interest only payout, whereby proceeds are left with the insurer and the individual will acquire interest payments, which the insurance company will pay on a monthly (quarterly, annual) basis. Individuals should remember that by choosing this option, should the interest rate be fixed or variable and should there be any guaranteed minimums or maximum limits, proceeds are passed on to one's beneficiaries upon their death.

Should you be the beneficiary of a life insurance policy, contact the insurer in a timely manner following the death of the insured. Be sure to have ready a death certificate to start the claims process.

The bottom line is individuals in this situation need to bone up on their life insurance knowledge and make sure they are getting what should be coming to them.