(Bloomberg News) California, the most populous U.S. state, enacted a law this week to protect life-insurance beneficiaries as the federal government seeks to boost disclosures for survivors of its employees.

Insurers must obtain written declarations from beneficiaries in California before directing their settlements to in-house accounts, according to a law that took effect on Jan. 1. Survivors "will be able to decide for themselves" to keep their money with insurers in a so-called retained-asset account or receive the benefits in a lump sum, California Insurance Commissioner Dave Jones said in an October statement.

"That's an essential consumer protection," said Birny Birnbaum, executive director of the Center for Economic Justice, a consumer group. "Commissioner Jones really took the lead in pushing a lot of this stuff."

Lawmakers and the U.S. Government Accountability Office have pushed for greater scrutiny of retained-asset accounts, or RAAs, since Bloomberg Markets reported in 2010 that carriers profit by holding and investing $28 billion owed to beneficiaries. In October of that year, the National Conference of Insurance Legislators adopted a "Beneficiaries' Bill of Rights" to increase oversight of RAA disclosures.

"When consumers have the option to choose between RAAs and lump-sum check payments, the overwhelming majority choose lump- sum check payments," according to the GAO.

'They Love It'

MetLife Inc., the biggest U.S. life insurer, and smaller rivals have defended RAAs, saying the accounts accrue interest for beneficiaries and relieve families of the need to manage their funds in periods of bereavement.

"Our account holders tell us they love it," Robert Henrikson said in July 2010, when he was chief executive officer of New York-based MetLife.

The U.S. Office of Personnel Management should improve disclosures to beneficiaries of federally sponsored life- insurance plans, the GAO said in a November report. The OPM administers the Federal Employees' Group Life Insurance program, and MetLife provides administrative services.

The National Association of Insurance Commissioners, the regulator group that coordinates rules among states, wrote a bulletin on RAAs with suggestions for what disclosures its members should require from carriers. Customers must be given details about fees incurred and informed that RAAs aren't backed by the Federal Deposit Insurance Corp., the NAIC said. The accounts are backed by insurance guarantee associations that, when a carrier fails, rely on contributions from solvent insurers to compensate for shortfalls.