Accusations over how life insurers allocate death benefits have resulted in a formal investigation by Rep. Edolphus Towns into Prudential Financial. Towns opened the investigation following allegations that Prudential didn’t automatically deliver a lump-sum check to families of deceased soldiers, but instead deposited that money into its own general fund.
The investigation comes on the heels of a similar life insurer fraud investigation launched in late July by New York Attorney General Andrew Cuomo. As part of that probe, Cuomo issued subpoenas to Prudential, MetLife Inc. and six other insurers for information concerning payouts to policy beneficiaries.
Towns, who is chairman of the House Oversight and Government Reform Committee, says his panel will investigate the insurance benefits for U.S. soldiers provided by Prudential Financial and the Department of Veterans Affairs.
Both the Towns and Cuomo investigations are focusing on how some life insurance companies place clients’ death benefits in an interest-bearing account, with the bulk of the interest benefiting the insurer, not the policy holders. The practice has been in existence since the 1990s.
Bloomberg Markets magazine reported on July 28 that Prudential holds payments owed to the families of fallen soldiers in its general corporate account and sends survivors “checkbooks” that aren’t insured by the Federal Deposit Insurance Corp. Meanwhile, Prudential earns a profit on the money held and pays the beneficiaries minimal interest.
As reported Aug. 11 by the Wall Street Journal, Prudential is the sole provider of life insurance for active duty members and veterans of the U.S. armed forces, under the Servicemembers Group Life Insurance Program and the Veterans’ Group Life Insurance program.