A probe launched in July by New York Attorney General Andrew M
Cuomo into survivor death benefit accounts for life policies sold
to US armed services members (see New York State Attorney General goes to war
against US life insurers) has been elevated to
Federal level. An investigation is now being carried by Senate
Finance Committee chairman Max Baucus.
Baucus’ probe will focus on the tax
status of earnings by Prudential Financial on survivor death
benefit accounts in its Service [members’] Group Life Insurance
(SGLI) programme. Baucus said in a release that press reports
indicated that upon the death of a SGLI policy holder, Prudential
holds the survivor benefits in its own corporate account, instead
of paying the benefits to their rightful owner, and not crediting
earnings on the funds to the beneficiaries.
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“I am very concerned about the
utilisation of retained-asset accounts and their potential harm to
the survivors of our service members,” said Baucus.
He continued: “If the press reports
are accurate, Prudential is earning over five times as much
interest as is being provided to the beneficiaries. These
investment earnings are derived from death payments that belong to
the beneficiary, not to Prudential.”
According to a class action suit
filed 29 July, for the year 2009, Prudential collected over $144m
on investment income through the SGLI programme alone, indicating a
5.69% return. However, Prudential paid beneficiaries only 1%
interest on the income.
Prudential and MetLife were the first two insurers served with
subpoenas by Cuomo as part of his probe. Also served with subpoenas
are at least another six insurers: Genworth Financial, Unum Group,
New York Life Insurance, Guardian Life, Northwestern Mutual Life
Insurance and MONY Life Insurance, a unit of Axa.
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