By Cara Baruzzi, Register Business Editor
cbaruzzi@newhavenregister.com

HARTFORD — Claiming life insurance companies may be bilking beneficiaries out of potential interest payments, Attorney General Richard Blumenthal said Friday he wants the state Insurance Department to take regulatory action.

Beneficiaries have complained recently about not receiving prompt, full payments on life insurance policies once their loved ones have died, he said.

Instead, according to Blumenthal, insurers have been providing “checkbooks” that let beneficiaries write checks up to the amount of the death benefit. But the so-called checkbooks are not bank checks, and money is not being held in a federally insured depository as consumers likely would expect from a checkbook, according to the attorney general.

The state’s insurance commissioner, however, said such concerns are being blown out of proportion and no problems have been reported in Connecticut.

Blumenthal alleges beneficiaries are paid less interest on their funds than the insurance company makes by holding the money. He feels keeping the funds in a federally insured depository would earn beneficiaries more interest on the money and is asking Insurance Commissioner Thomas Sullivan to take regulatory action.

“This practice appears to take advantage of consumers at a time, after the death of a loved one, when they are most vulnerable,” Blumenthal said in a statement. “Very simply, when death benefits are due, they should be paid, fully and promptly.”

In a Friday letter to Sullivan, Blumenthal urged the commissioner to act swiftly since many people likely are unaware of the money they potentially are losing.

“If consumers clearly understood that these funds were being held in uninsured accounts, and that consumers were almost certainly receiving lower interest rates than they could receive in federally insured bank accounts, no rational consumers would accept this arrangement,” he wrote in the letter.

But Sullivan quickly responded to Blumenthal in a letter that said the checkbooks — retained asset accounts — have been available for decades.

“The public should be allowed to make informed decisions about life insurance proceeds and not have the long arm of government prohibit a practice that has been in place for at least 20 years, with zero complaints or problems reported in Connecticut,” Sullivan wrote. Continued...

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He said Blumenthal is basing his concerns on media reports that have been “misinformed” and “sensationalized.”

The Insurance Department reviews how death benefits are paid to ensure consumers are protected, he said.

He added, though, that the National Association of Insurance Commissioners is reviewing disclosure requirements associated with the retained asset accounts and exploring ways to better inform consumers about them.

Sullivan also said that such accounts in Connecticut are guaranteed by Connecticut’s Life and Guaranty Association, which covers accounts up to $500,000.

Call Cara Baruzzi at 203-789-5748.

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