Life insurance beneficiaries may not always take their proceeds as a single payment. When this happens, the insurance company is able to earn money on the remaining amount. Moreover, many insurance companies try to âmanageâ the money for beneficiaries by keeping the money in interest-bearing accounts and issuing checkbooks for beneficiaries.
LANGUAGE
They use language, such as, âLet me give you the security of not having to make an investment choice,â essentially leveraging off the emotional distress experienced by the beneficiaries. Given the trust commonly invested in insurance companies, it is relatively easy for beneficiaries to fall under this trap; however, this factor is outside the reach of insurance regulations.
SECURITY
The problem is amplified when you remember that benefit money left with insurance companies is not covered under the Federal Deposit Insurance Corporation (FDIC), so if the insurance company goes bust so does your beneficiary account balance. Many consumers are unaware of this, especially as the checks that are issued from the insurance company resemble traditional bank checks.
CUOMO PROBE
Money left with insurance companies carries a greater risk in other ways as well. Most notably, certain states have provisions that if money is left untouched for three years, then the money has to be turned over to the state.
RETURNS
In addition, the money you leave in your beneficiary account earns a return as low as 0.5 percent, compared to the rates several times that you could be able to get at a traditional bank. According to the Consumer Federation of America, âLeaving it with the insurance company is not going to give you more money â donât let them hold onto it.â Moreover, insurance companies earn a return on your retained assets account of over 4.4 percent on average.
WITHDRAW OR NOT?
Instead of taking on this type of risk, it is better for a life insurance beneficiary to withdraw the money in its entirety. There are no fees and the money is available within three days of the claim approval. Further, the money can be invested into a high-yield checking or savings account, allowing you to earn a return as high as 5 percent without taking on any risk (as bank deposits are insured by the FDIC).
Similar Posts:
- Investment Banking: Are Bonds Really “Safe” Investments?
- TIAA-CREF Bank: Retirement-Plan Giant Opens Online Bank
- Best Savings Accounts for 2011
- Stay Out of the 401k Penalty Box
- Senators ask SEC to force companies to reveal data leaks
