On September 16, 2010, the National Conference of Insurance Legislators ("NCOIL") Life Insurance & Financial Planning Committee (the "NCOIL Committee") discussed its draft Beneficiaries' Bill of Rights. The NCOIL Committee continued from where it left off from its September 8th call (See our September 9th Client Alert " NCOIL Call to Discuss its Proposed Model Retained Asset Accounts Legislation").
The September 16th call focused on whether the Beneficiaries' Bill of Rights would allow insurers to transfer death benefits to retained asset accounts ("RAAs") without the beneficiaries' prior written consent . NCOIL President, Rep. Robert Damron (KY), explained that he had drafted the language in Section 4. based upon his belief that the beneficiary must make the decision on whether the death benefits should be transferred to an RAA, not the insurer. Industry presented its views that RAAs are the "best settlement option available" when the beneficiary fails to select the method of payment for the death benefit. An ACLI representative commented that RAAs not only preserve the beneficiary's choice on how to receive the death benefit proceeds, but also allow the beneficiary to earn interest pending the beneficiary's decision. Several members of the NCOIL Committee agreed with the industry's comments, with one noting that if a default option is not permitted, there is a window when death benefit proceeds are left on deposit with the insurer earning no interest.
Because several NCOIL Committee members expressed their agreement with the industry, Rep. Damron agreed that the focus of the Beneficiaries' Bill of Rights should be on the required disclosures. Because death benefits are the beneficiaries' money, Rep. Damron stressed that the disclosures must be made to the beneficiary. The NCOIL Committee agreed to the language:
An insurer may not use a retained asset account as the mode of settlement unless the insurer discloses such option to the beneficiary or the beneficiary's legal representative prior to the transfer of the death benefit to a retained asset account.
One legislator commented that he believed insurers should clearly disclose all the available options to receive the death benefits and the risks associated with electing an RAA. The NCOIL Committee will focus on the disclosure requirements at its next conference call, which will be scheduled for a date within the next two weeks.