Take the Money and Run! - Part 2

This is a follow-up to a story we ran on 28 July 2010. The Retired Enlisted Association (TREA) "Washington Update" has this to say:

Prudential Insurance Company Being Sued by Deceased Veterans’ Families and Others

Bloomberg News reports that a lawsuit, originally filed in Springfield, Massachusetts, accuses Prudential of improperly collecting interest on unpaid veterans’ life insurance benefits. The lawsuit has also been expanded to include claims of fraud.

The plaintiff’s attorneys are seeking to have the case certified as a class action on behalf of 60,000 beneficiaries of military life insurance policies.

The suit claims Prudential fails to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies, instead encouraging them to leave the money in accounts with the company, which pays them a small amount of interest.

Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential Financial Inc., declined to comment on the suit. He said the company informs death-benefit beneficiaries of their payment options and that they can immediately withdraw all the money from their Alliance Account.

The plaintiffs claim that Prudential “fraudulently informs beneficiaries that this Alliance Account scheme constitutes a ‘lump-sum’ payment as required by law.” Instead, the company keeps the money in its general account, paying only when the beneficiaries write drafts on the account, they claim.

More than 100 insurance carriers earn investment income on $28 billion owed to life insurance beneficiaries, Bloomberg Markets magazine reported last month.

In another lawsuit, a woman named Jasmine Williams is suing MetLife Inc. She claims that Metlife told her that her $101,819 in life insurance benefits were safe and was sent what the company called a guaranteed money market “checkbook” in 2002

The next year, Williams, then 19, told MetLife that a cousin had taken $48,900 by forging her name on 12 checks. Williams, of Rougemont, North Carolina, sought reimbursement. The insurance company and Pittsburgh-based PNC Bank NA, which processed MetLife checks, refused to cover Williams’ losses. The bank claimed that the insurer owed her the money, and the insurer claimed that only the bank could reimburse her.

The reason they could do that is because Metlife, like Prudential, retains the assets instead of depositing them in a bank. Had Williams’ money been in a bank, instead of an account managed by an insurance company, federal and state law would have required the bank to verify signatures on checks and cover losses. Williams’ predicament spotlights the uncertainties people face by accepting so-called retained-asset account checkbooks from insurers. In short, if you or anyone you know becomes the beneficiary of a life insurance policy, they should withdraw all of the money immediately and deposit the money in a traditional bank, for safety’s sake.

We will keep you updated on this important issue as developments warrant.