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Though the U.S. Department of Veterans Affairs has announced changes to its life insurance benefits administered by Prudential Insurance Co. of America, the modifications are relatively minor, and the retained-asset account option will remain intact.
After a wave of critical attention and legal challenges targeted at life insurance practices within military, veteran and federal employee policies, the VA had promised to examine its own system. The agency says now it will be providing new documentation and practices that will clarify beneficiary options for these policies.
A new document will clearly give beneficiaries a choice between an immediate lump sum payment, a retained-asset account known as an Alliance Account or a 36-month schedule of installment payments, according to the VA. The programs’ web info and handbooks will be updated for increased clarity, and the use of financial counseling services will be further encouraged, too.
Prior to this, when beneficiaries wanted a lump-sum payment, they would be given an Alliance Account checkbook from which they could withdraw any desired amount up to the total. “The dispute has been that the Alliance Account is not a lump-sum option, which is false,” said Bob DeFillippo, a Prudential spokesman. “It is a lump-sum option, because once you receive the checkbook, all you need to do is write a check to yourself for the entire amount of the death benefit. All of this is clearly explained in the letter received by beneficiaries before they select a payment option.”
Now the lump-sum option will instead offer a direct check.
According to the announcement, the insurance company will be required to “conduct a follow-up contact with beneficiaries whose accounts remain open after six months to confirm the beneficiary understands the terms of the account.”
Prudential (NYSE: PRU) is the long-time contractor providing the Servicemembers’ Group Life Insurance program and also the Veterans’ Group Life Insurance program. “Prudential has agreed to implement these adjustments, and the department will continue to carefully monitor this program to ensure that service members’ and veterans’ beneficiaries are well-protected,” said Veterans Affairs Chief of Staff John R. Gingrich, in a statement announcing the changes.
At a recent hearing at a National Association of Insurance Commissioners national meeting, Bernard Winograd, chief operating officer for Prudential Financial Inc.’s U.S. business, defended use of the Alliance Account. “It’s our view that it does serve customers well,” he said. He said that about 60% of the accounts are emptied within the first year, and that the interest rates offered are “consistently higher than what is available at an interest-bearing checking account at a bank.”
A recently filed lawsuit against Prudential in U.S. District Court in Massachusetts alleges violations of contract and fiduciary duty by the insurer and seeks class-action status to represent policy recipients with similar backgrounds (BestWire, July 30, 2010).
Prudential stock was selling at $55.31 in afternoon trading on Sept. 15, up 1.14% from the previous close. Prudential of America Group’s insurers have current Best’s Financial Strength Ratings of A+ (Superior).
(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)