State insurance regulators have issued a consumer alert about the industry practice of retaining death benefit funds rather than paying them in a lump sum.

The National Association of Insurance Commissioners is warning beneficiaries about retained-asset accounts, or accounts where insurers hold onto and invest death benefit proceeds, instead of issuing a lump-sum check to the beneficiaries. Often beneficiaries receive a checkbook-like account that's not insured by the Federal Deposit Insurance Corp.

Bloomberg Markets magazine reported in July that insurers profit by holding and investing $28 billion owed to 1 million beneficiaries.

"You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option," the alert said. "While the documents you receive might look like a checkbook, it might actually be drafts, which are similar to checks, but different in some ways."

New York Attorney General Andrew Cuomo has opened a fraud probe and subpoenaed insurers including MetLife and Prudential Financial in connection to the practice.