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RAAs: New Jersey Adopts Temporary Order

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The New Jersey Department of Banking and Insurance says it will be developing retained asset account (RAA) rules.

Thomas Considine, the New Jersey banking and insurance commissioner, has talked about the upcoming RAA rules in a preamble to Order Number A10-119, which relates to RAAs used by life insurers.

An RAA is a method of paying life insurance benefits through a vehicle that resembles a checking account rather than sending the beneficiary a check for the whole amount.

Critics say RAAs often pay lower interest rates than bank accounts and are not insured by the FederSoldiers silhouetted against the skyal Deposit Insurance Corp. (FDIC).

Supporters say RAAs pay rates comparable to the rates provided by other safe, highly liquid accounts, are backed by state insurance guaranty funds, and give grieving beneficiaries time to postpone making complicated financial decisions.

New Jersey insurance regulators have taken an interest in the subject in recent weeks because of media reports about use of RAAs at the Servicemembers’ Group Life Insurance (SGLI) and Veterans’ Group Life Insurance (VGLI) programs. A unit of Prudential Financial Inc., Newark, N.J. (NYSE:PRU), has been administering the SGLI and VGLI programs for years.

The U.S. Department of Veterans Affairs recently worked with Prudential to come up with new guidelines for use of RAAs.

Considine declares in the preamble to the New Jersey RAA order that “RAAs provide life insurance policy beneficiaries with both flexibility and value not

found in the payment of benefits in a check directed to the beneficiary.”

But New Jersey has not reviewed forms and notices referring to RAAs in the past, and the forms and notices may not provide adequate information about RAAs, Considine says.

The New Jersey department “will propose rules in the future clarifying that, where a life insurer offers a RAA and/or other payment options in addition to a direct check payment of the full policy proceeds, disclosure statements related to RAAs and such other options will be filed for approval with the proposed life insurance form, and providing standards for the review and approval of such disclosure statements,” Considine says.

Meanwhile, while work on the new rules is under way, an order will govern RAA programs offered by life insurers operating in New Jersey.

The order, which will last for 120 days, will require that group life issuers give policy owners and death benefit beneficiaries information about RAA benefits payment options.

The notice should include information about FDIC or guaranty association backing, the interest rate that the RAA will pay, a notice about any fees that will be charged, and a statement that the beneficiary can withdraw the RAA balance with one transaction without paying any fees or penalties. The notice must explain how the beneficiary can go about getting all of the cash out of the RAA.

All life insurers operating in New Jersey should send the New Jersey department copies of forms and other written material that describe RAAs and any other non-direct check payment options offered, Considine says.

Insurers have 150 days to comply with the data call.


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