Beneficiary Beware! Why You Should Never Accept a 'Checkbook' for Your Husband's Life Insurance Payout

🏦 The "Fake Bank Account" Trap

Your spouse had a $500,000 life insurance policy. They pass away, and you file the claim.
A few weeks later, a package arrives from the insurer. Inside is not a lump-sum check, but a "Money Market Checkbook."

The letter says: "We have deposited your funds into a convenient, interest-bearing Retained Asset Account (RAA). You can write checks against it anytime."

It sounds helpful. You are grieving, and dealing with a massive deposit feels overwhelming. But this is a financial trap. By accepting this account, you are effectively loaning your $500,000 back to the insurance company. They invest it at 5-6% (2026 corporate bond rates), pay you a measly 0.5%, and—most dangerously—your money has ZERO FDIC protection.

This practice is called a Retained Asset Account (RAA).
It is a tool designed for the insurer's liquidity, not your benefit.

Beneficiary Beware!

Why It Is Dangerous

In 2026, with high-yield savings accounts paying over 4%, leaving money in an RAA is actively losing value.

• 1. No FDIC Insurance: If you put $500,000 in Chase or Bank of America, it is federally insured. An RAA is NOT a bank account. It is an "IOU" (debt) from the insurance company.
  *Note: State Guaranty Associations do offer some protection (usually capped at $250k-$300k depending on the state), but the payout process is slow and bureaucratic compared to FDIC.
• 2. The Interest Rate Arbitrage: The insurer takes your $500,000 and invests it to earn ~5.5%. They pay you a "guaranteed rate" of 1%. They are pocketing the 4.5% spread—profit that should be yours.
• 3. Regulatory Gray Zone: Since it's not a bank account, it's not protected by banking laws. Since it's not a brokerage account, it's not protected by SIPC. It sits in a limbo where you have the least leverage.

How to Get Your Cash Out

Insurance companies make the "Checkbook" the default option on the claim form because it saves them cash flow.

If you haven't filed the claim yet.
Scrutinize the claim form. Look for a box labeled "Lump Sum Payment via Check" or "Electronic Funds Transfer (EFT)." Check that box. If there is no box, write in clear, bold letters: "I decline the Retained Asset Account. Please send one Lump Sum Check for the full amount."

If you already received the Checkbook.
Don't panic. Write one single check for the entire balance and deposit it into your own secure, FDIC-insured High-Yield Savings Account immediately. Do not leave the money sitting there "for convenience."

🛡️ Chief Editor’s Verdict

Banks are for banking. Insurers are for insuring. Don't mix them.

1. Know Your Rights (State Laws): In states like California (CA), New York (NY), and Illinois (IL), insurers are legally required to provide a supplemental disclosure form explaining that the RAA is not FDIC insured. If they didn't, they broke the law.
2. Spread the Risk: If the payout exceeds $250,000, do not put it all in one bank account (due to FDIC limits). Open accounts at different banks or use a "Cash Sweep" program at a brokerage to ensure 100% of your nest egg is government-backed.

Take the check. Deposit it. Close the chapter.

Financial & Legal Disclaimer: The information provided in this article is for educational purposes only and does not constitute financial or legal advice. While State Guaranty Associations provide some level of protection for Retained Asset Accounts in the event of insurer insolvency, limits and timelines vary significantly by state. Always consult with a certified financial planner (CFP) or estate attorney to determine the best vehicle for your inheritance.