Legislation requiring full disclosure with regard to Retained Asset Accounts used to pay death benefits under the Servicemembers’ Group Life Insurance Program passed the House of Representatives yesterday by a bi-partisan 358-66 vote. The proposed “Securing America’s Veterans Insurance Needs and Goals Act of 2010” (H.R. 5993) was introduced in July by Congresswoman Deborah L. Halvorson, a freshman Democrat representing Illinois’ 11 Congressional District in the southern suburbs of Chicago. Among the legislation’s co-sponsors is Representative John Garamendi, a former California Insurance Commissioner and former California Lieutenant Governor.
If approved in what will be a lame duck session of the US Senate in November, the legislation (S.3718) would require any life insurance company providing life insurance for veterans under the Servicemembers’ Group Life Insurance program to (1) provide financial counseling to the beneficiary or other person entitled to payment upon the establishment of a valid claim and (2) include full disclosure with respect to such payment, including advantages and disadvantages of maintaining such payment with the company versus a financial institution. It would also prohibit a life insurance company from charging fees to a payee for maintaining such payment in a retained asset account with the insurance company.
The text of the proposed law states that “a life insurance company shall (A) make available, both orally and in writing, financial counseling to a beneficiary or other person otherwise entitled to payment upon the establishment of a valid claim….; and provide beneficiaries with oral and written disclosure of
“(i) the methods available to receive such payment, including–
(I) allowing the insurance company to maintain the payment;
(II) lump-sum payment; and
(III) any alternative methods;
(ii) an explanation that any such payment that is maintained by the life insurance company is not insured by the Federal Deposit Insurance Corporation;
(iii) an explanation that interest earned on any such payment that is maintained by the life insurance company will be comparable to on-demand account interest rates; and
(iv) other relevant information.”
In addition the proposed law states “a life insurance company may not charge any fees to a beneficiary … with respect to maintaining such payment with the company” with regard to the Servicemembers’ program.
The immediate effect of the proposed legislation would be nil, as the sole provider of life insurance under the Servicemembers’ Group Life Insurance Program is the Prudential Life Insurance Company of America. Most insurance companies had been making the disclosures specified in the proposed legislation long before Bloomberg ran its article by David Evans in late-July, and even as sluggish a company as Prudential almost certainly would have been doing so.
One might question the wisdom of enacting into law a requirement that the life insurance company making the payment – rather than a neutral objective party – also provide the required financial counseling to Servicemembers’ beneficiaries. While that seems to pose somewhat of a possible conflict of interest given the possible self-interest of the insurance company in the advice it provides, the provision of advice as part of the payment process has long been a part of the way the Servicemembers’ program operates.
