California passed this month a law that changes how life insurance benefits can be paid out to beneficiaries after the death of their loved ones. In the past, beneficiaries were given only one option, retained-asset accounts. Now, beneficiaries have the option of receiving their benefits in one lump sum payment.

Sentate Bill 599 requires all life insurance benefits be paid in the form of a lump-sum payment to the beneficiary or by another settlement option that is clearly described in the claim form. If the beneficiary does not choose one of the available settlement options, a retained-asset account would be authorized to be the default option only if the claim form provides a prominent disclosure that in the absence of a choice by the beneficiary, payment of policy benefits would be made through establishment of a retained-asset account on the beneficiary's behalf.

A retained-asset account is any mechanism where the settlement of proceeds payable under a life insurance policy is accomplished by the insurer, or an entity acting on behalf of the insurer, by depositing those proceeds into an account with check or draft writing privileges. Those proceeds would be retained by the insurer until a supplemental contract was formed not involving annuity benefits.