Where's the money?

• Position: TRENDS AND TRANSITIONS

There's a battle brewing over life insurance payout methods. Questions arose after Cindy Lohman, the mother of an Army sergeant killed in Afghanistan, had difficulty accessing his $400,000 life insurance proceeds because they were placed in a "retained asset account."

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Since 1982, life insurance companies have offered beneficiaries these accounts when they choose to receive the payment as a single lump sum. In the account, the money draws interest, and the beneficiary is supposed to be able to access the funds through a check or a draft book. They're designed to be temporary, allowing beneficiaries time to decide what to do next.

There currently are more than 60,000 retained asset accounts in the U.S. Department of Veterans Affairs's Group Life Insurance program.

But concerns are growing over how these accounts operate and whether consumers know the risks involved. When Lohman tried to use the "checks" to purchase a bed and a camera on two different occasions, the stores refused to accept them because they were drafts, not checks. Questions focus on the interest rates paid, the security and soundness of the money, and disclosures made by insurance companies.

Critics say insurance companies are not paying beneficiaries a fair interest rate and their money is not secure because it is not FDIC-insured. They also charge that beneficiaries are not given adequate information on how these accounts operate.

Insurance companies counter that the accounts earn interest at rates comparable to other similar accounts and are protected by state law through state insurance guaranty associations. Insurance companies also argue that they comply with all disclosure rules set by the National Association of Insurance Commissioners and the states.

Since 1991...