8 min read · Last updated September 7, 2026
- A retained asset account (RAA) is not a bank account. The insurer settles a death benefit by opening an account in the beneficiary’s name, giving them a book of checks or drafts, while keeping the actual money on its own books and investing it.
- These accounts are not insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC’s own 2010 bulletin states plainly that “RAAs generally are not FDIC insured” because the money sits in an insurance company liability, not a bank deposit; a state guaranty association covers them instead, at a limit that varies by state.
- Historical rates paid on these accounts have run well below market. Bloomberg’s investigative reporting found Prudential paid survivors as little as 0.5% interest in 2010, “less than half of the rate available at some banks with accounts insured by the FDIC.”
- A beneficiary can request the entire balance as a single lump-sum check at any time. A 2014 class-action settlement over exactly this practice, tied to military death benefits, paid roughly 67,000 beneficiaries $125 each after the insurer’s handling drew federal scrutiny.
In this article
- What a Retained Asset Account Actually Is
- Why This Is Not a Bank Account
- The Real Interest Rate Gap, in Dollars
- The Disclosure Right Insurers Almost Kept Quiet
- Frequently asked questions
A 2010 investigation found one major insurer was paying survivors of fallen soldiers as little as 1 percent interest on death-benefit accounts while earning nearly five times that rate on its own corporate funds, an arrangement that eventually drew a federal class-action settlement. Eleven days after Kavita Menon filed a claim on her late husband’s $250,000 group life policy, her insurer approved it, an approval that came quickly in part because the policy’s contestability period had lapsed years earlier. But approval didn’t mean a check. It meant a checkbook tied to an interest-bearing balance the insurer itself would continue to hold and invest.
What a Retained Asset Account Actually Is
Instead of mailing a lump-sum check, many insurers settle a group or individual life insurance death benefit by opening what the industry calls a retained asset account (RAA): an account in the beneficiary’s name, complete with a book of checks or drafts that function like a checkbook. The beneficiary can write against the balance at any time, for any amount, up to the full sum.
The part that surprises most beneficiaries is where the money actually sits. It never moves to a bank. It stays in the insurance company’s own general account, the same pool of assets the insurer uses to back all of its other obligations, and the insurer continues investing it. MetLife introduced the product in 1984 under the brand name “Total Control Account”; other insurers market the same structure under their own names, including Prudential’s “Alliance Account.” The mechanic is identical regardless of the brand: the insurer keeps custody of the money and pays the beneficiary a declared interest rate on the balance until it is drawn down.
Why This Is Not a Bank Account
The single most important thing to understand about a retained asset account is what does not protect it. The FDIC’s own consumer bulletin addresses this directly: “Recent media reports indicate that many RAA recipients incorrectly think these products are deposit accounts insured by the FDIC when, in most instances, they are not held in bank deposit accounts and, therefore, are not eligible for FDIC insurance coverage.” The bulletin adds that an RAA “is an insurance company product,” not a bank product, and that “information provided to the FDIC indicates that RAAs generally are not FDIC insured.”
Instead, RAA balances are typically backed by state guaranty associations, which step in if an insurer becomes insolvent, but at meaningfully different terms than Federal Deposit Insurance Corporation (FDIC) deposit insurance. Virginia’s own statute governing retained asset accounts requires insurers to disclose in writing that “retained asset account funds held by insurance companies are not insured by the Federal Deposit Insurance Corporation but are guaranteed by the state guaranty association.” Guaranty association coverage limits vary by state and are set as a flat dollar ceiling per person, one that does not stack the way FDIC coverage can across multiple accounts.
The Real Interest Rate Gap, in Dollars
Why would an insurer prefer to keep the money instead of mailing a check? Because it earns the spread between what it credits the beneficiary and what it actually earns investing that money. Bloomberg’s 2010 investigation, reported in full by InvestmentNews, found that Prudential “paid survivors like Lohman 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds.” That same 2010 reporting found Prudential “paid 0.5 percent interest in July to survivors of government workers and soldiers. That’s less than half of the rate available at some banks with accounts insured by the FDIC up to $250,000.” Industry-wide at the time, the same investigation put the scale at “$28 billion in 1 million death-benefit accounts managed by insurers.” Today’s national average bank savings rate sits even lower, at 0.38% APY (Annual Percentage Yield), per the FDIC’s own published rate data.
The gap is easiest to see in dollars, on a realistic balance like Kavita’s $250,000.
| Account type and rate | Annual rate | Interest earned on $250,000 in one year |
|---|---|---|
| Retained asset account, historically documented low (Prudential Alliance Account, 2010) | 0.5% | $1,250 |
| National average bank savings account (FDIC, 2026) | 0.38% | $950 |
| Insurer’s own corporate portfolio return, reported for comparison (Prudential, 2008) | 4.8% | $12,000 |
| Current FDIC-insured high-yield savings account (Bankrate, 2026) | 4.10% | $10,250 |
If Kavita’s account had credited even the historically documented low end of that range, 0.5 percent, she would earn $1,250 in interest over a year on her $250,000 balance. The same $250,000 moved into an FDIC-insured high-yield savings account paying today’s prevailing rate of 4.10 percent APY would earn $10,250 over that same year, a gap of $9,000 that stays with the insurer for as long as the balance sits in the retained asset account.
The Disclosure Right Insurers Almost Kept Quiet
This exact pattern, insurers settling military death benefits into retained asset accounts, became a national story after Bloomberg’s reporting named a specific case: Cindy Lohman, whose son, Army Sgt. Ryan Lohman, was killed in Afghanistan in August 2008. His $400,000 Servicemembers’ Group Life Insurance benefit was settled into an Alliance Account rather than paid as a lump sum. The reporting, corroborated by CBS News, found the arrangement let the insurer earn an estimated $24.5 million annually by holding roughly $662 million of survivors’ money.
The fallout led to litigation, consolidated as In re Prudential Insurance Company of America SGLI/VGLI Contract Litigation (SGLI and VGLI are the military’s Servicemembers’ and Veterans’ Group Life Insurance programs) in federal court in Massachusetts. The case settled in 2014 for a $39.2 million fund, paying roughly 67,000 class members $125 each, plus charitable commitments to veterans’ organizations. It also pushed states to require clearer disclosure. Virginia’s statute, cited above, now requires insurers to spell out in writing that a beneficiary can request a lump sum at any time and that the account is not FDIC-insured, disclosures many beneficiaries previously never received before selecting, or defaulting into, a retained asset account.
Kavita read that disclosure language for the first time only after searching for it herself. She wrote a single draft for the full $250,000 balance and moved the money into an FDIC-insured account the same week. Her case was simpler than it could have been; when more than one person claims the same death benefit, an insurer can bypass this whole settlement question entirely by depositing the money with a court instead of paying anyone directly.
Frequently asked questions
Is a retained asset account the same as a bank account?
No. A retained asset account looks and functions like a checking account, with a book of checks or drafts, but the money stays in the insurance company’s own general account rather than moving to a bank. The insurer keeps custody of the funds and continues investing them until the beneficiary writes against the balance.
Is my life insurance death benefit FDIC-insured if it’s in a retained asset account?
No. The FDIC’s own consumer bulletin states that retained asset accounts “generally are not FDIC insured” because they are an insurance company product, not a bank deposit account. State guaranty associations provide a separate layer of protection instead, at a flat dollar limit per person that varies by state.
Can I ask for a lump-sum check instead of a retained asset account?
Yes. Beneficiaries can generally request the full balance as a single check or draft at any time, whether the retained asset account was the default settlement option or one they selected. Writing one draft for the entire amount closes the account and moves the money wherever the beneficiary chooses.
What interest rate do retained asset accounts pay?
Rates are set by the insurer and vary by account and time period. Historically documented rates have run well below market; one insurer’s reported 2010 rate to military-family beneficiaries was 0.5%, described in Bloomberg’s reporting as less than half the rate then available at some FDIC-insured banks.
What happens to a retained asset account if the insurance company fails?
The balance is not protected by FDIC deposit insurance. Instead, it is typically covered by the relevant state’s life and health insurance guaranty association, at a flat dollar limit per person that varies by state, a different and generally lower protection ceiling than standard bank deposit insurance provides.
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