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 Federal 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