New York regulators on Friday told insurance companies they must pay out fully when members of the military are killed in action as the standard practice, rather than automatically establishing a kind of checking account that provides interest to the companies.
State Financial Services Superintendent Benjamin Lawsky said New York is the first state to require the measure. He said families can often get a better return on interest if they invest the bulk payment, rather than draw down from "retained assets accounts" that are now commonly set up by insurance companies. Under the accounts, the families receive some of the return on interest and the company gets the rest.
There was no immediate comment on Friday's directive from The Life Insurance Council of New York, Inc., a statewide industry lobbying group.
In 2010, Bloomberg Markets magazine reported the widespread legal practice involving $128 billion in families' assets. Then-Attorney General Andrew Cuomo subpoenaed insurers to collect information on the accounts and U.S. Sen. Charles Schumer sought to require the Department of Veterans Affairs to end the practice.
"Unfortunately, a lot of money is at stake here," Lawsky said in an interview. "We just want to make sure they know what they are buying and they get what they are buying."
Families can still request a retained assets account.
The order applies to life insurance companies operating in New York, many of which have customers nationwide.
"Our soldiers, veterans, and their families, as well as all New Yorkers deserve to get from the life insurance companies exactly what they paid for," Lawsky said. "The companies should not be padding their profits at the expense of the needs of New Yorkers."