Survivors are told the death benefit is being placed in a secure interest-bearing account, and they are given what the company calls a “checkbook” to spend the money when they want.
In fact, insurers place the so-called retained-asset accounts in their own general corporate accounts and keep most of the investment earnings. The money isn’t guaranteed by the Federal Deposit Insurance Corp., and the “checks” are IOUs for money in the insurer’s account.
BusinessWeek - Veterans agency to probe insurers on soldier benefits
More Details at NPR: Life Insurance Firms Profit From Death Benefits
Media Center of The New York State Attorney General Andrew M. Cuomo