The Federal Deposit Insurance Corp. is looking into whether life insurers misled consumers about retained death benefits, and is asking companies to clearly communicate that funds are not guaranteed by the U.S. government.
According to a letter from FDIC Chairman Sheila Bair to the National Association of Insurance Commissioners, an initial review of the issue shows that many consumers may mistakenly believe that accounts are insured by the FDIC. She added that it is illegal to misrepresent FDIC coverage.
Her letter states, "I am writing to express our serious concerns." Insurers "should explain that these accounts are not FDIC-insured, and that fact should be clearly and conspicuously disclosed not only to policyholders, but also to their beneficiaries at the time of the policyholder's death."
A recent report in Bloomberg Market magazine found that more than 100 carriers have profited by holding and investing $28 billion owed to life insurance beneficiaries.
According to Bair, "If that is the case, it would seem disclosure and explanation of these guarantees to beneficiaries and policyholders would be appropriate. We believe it is important to avoid public confusion."