Regulators in Georgia have barred a California company from doing business in their state, saying it violated rules adopted in 2007 to prevent the sale of misleading or unsuitable life insurance policies to military personnel. Insurance Commissioner John W. Oxendine announced on July 2nd that he had barred Trans World Assurance, based in San Mateo, California, and imposed a $214,000 fine. The Commissioner found that the company had committed nearly 200 infractions from September 2007 to last March. The company was also ordered to reimburse service members for the premiums they paid on policies it sold during that period.
The specific rules involved in the case were adopted as part of Georgia’s response to military and Congressional concern over the sale of unsuitable financial products to young military consumers, described in articles in The New York Times in 2004. Insurance commissioners in many other states adopted similar laws, and began working more closely with military legal authorities to monitor insurance sales to service members. After a hearing in May, Commissioner Oxendine determined that the policy that Trans World had sold — which contains provisions for both a death benefit and a cash-accumulation fund — had features that did not comply with the new rules for that kind of policy.
These policy features included its method of computing interest and its imposition of penalties for withdrawals from the cash fund. Commissioner Oxendine also ruled that the company had sold the policies to military personnel without first determining whether the product was appropriate for service members covered under the low-cost life insurance provided through the military. At a May hearing, Trans World argued that its policy, called the Flexible Dollar Builder, was not subject to the military protection features in Georgia’s law. Its lawyers argued that the savings fund was part of the policy’s cash value, which made it exempt from rules governing “side funds” set up in tandem with insurance policies. They claimed that view was supported by the tax-free treatment of the cash that accumulates in the fund. Commissioner Oxendine rejected that reasoning, saying it was inconsistent with both Georgia court decisions and the insurer’s own financial statements and sales materials. In one brochure, for example, the company distinguished a policy’s “accumulation fund” from its “cash value.” And in its financial filings, it described the money in the funds as “deposits.”
Source: New York Times
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