New Jersey Regulators OK Prudential's Life Insurance Payouts

Published: Wed 11 Aug 2010

Larry Roth

New Jersey insurance regulators announced that they have decided Prudential Financial handled life-insurance benefits properly in a controversial incident involving a fallen soldier who was killed in 2008 in Afghanistan.

The life insurance company's payout practices received national attention in recent weeks from legislators, the media, and regulators after a magazine article scrutinized an industry method in which companies place death benefits in a money-market-like account and provide a checkbook for withdrawals instead of giving beneficiaries a check for the lump sum.

The article, published in July 28, insinuated that life insurers profit at the expense of veterans' families by keeping their life insurance proceeds. The article focused on the mother of the fallen soldier in Afghanistan who questioned the accounts, claiming that two retailers had refused her checks, among other issues.

In a letter on August 4 answering a request from New Jersey insurance regulators, Prudential explained that 25 checks from the mother's account were cleared from October of 2008 to April of 2010, at which point most of the benefits were withdrawn.

"This letter satisfies the department that Prudential acted properly and further reassures this department of the value of 'retained asset accounts,' " the title of the money-market-like accounts, Thomas B. Considine, the commissioner of banking and insurance of New Jersey, stated in an interview. Prudential is headquartered in New Jersey.

Some other state regulators examining life insurers' payout methods also have the letter, which was evaluated by the The Wall Street Journal.

"Our reporting speaks for itself, and we stand by the story," Ty Trippet, a spokesperson for Bloomberg News, said.

During an interview with The Wall Street Journal, the soldier's mother, Cindy Lohman of Maryland, said she believes the fact that additional checks cleared should not be sufficient evidence of the propriety of insurers' payout practices.

She claimed checks that actually cleared did not always do so "in a timely fashion" or as efficiently as she thinks they might have if they money had been deposited at a traditional bank. She said those setbacks did not prompt her to move the funds from Prudential initially because "your focus isn't on how you're going to manage the bank account" when mourning a child.

Lohman, who has also provided interviews to NPR and Katie Couric on "CBS Evening News," explained she is coming forward now to inform other families about what she views as the drawbacks of retained-asset accounts.