Are Life Insurers Playing Fair?

Every day, it seems, another lawmaker or regulator is calling for a probe of how life insurers pay out death benefits.

One concern: whether beneficiaries understand their options for getting money due when an insured person dies.

Often insurance firms put policy proceeds into interest-bearing accounts and provide what many call "checkbooks" for withdrawals, rather than mailing a lump-sum check. With the checkbook, which is not the same as bank-account checkbook, the beneficiary may withdraw all or part of the money.

The checkbook approach has been around since the 1980s. But a July Bloomberg Markets magazine article put a human face on the subject—the mother of a soldier killed in Afghanistan who feels misled—bringing it widespread attention.

The industry promotes the accounts as a useful service for people too bereft to make quick financial decisions. But regulators are looking at whether insurers should be required to offer consumers a lump-sum check, whether it is appropriate for insurers to profit from the money they hold for beneficiaries and whether insurers adequately disclose that their accounts aren't insured by the Federal Deposit Insurance Corp.