Prudential Life Insurance Deceptive Sales News

According to allegations made by policyholders and others, Beginning in the early 1980s and continuing through the mid 1990s, insurance agents working for Prudential Life Insurance used deceptive tactics to sell insurance polices. The basis for the deception involved telling existing clients that they could get additional life insurance at little or no cost. In addition, agents told customers that they would only need to pay premiums on policies for a limited amount of time. After that, the policy would remain in force without any money needed. In most cases, both of these stories were untrue. Other deceptive practices included selling life insurance polices that were disguised as investments.

The deception undertaken by some Prudential agents is called churning. Churning life insurance means selling policies to customers that are not needed in order to generate commissions. One process of churning life insurance means convincing existing customers that they can get additional coverage for little or even no money. It works by writing a customer a new insurance policy, and paying the premium for that policy from the cash value and dividends that have accumulated in the existing older policy. This strips the cash value of the existing policy, which leaves the insurance policy worth much less for the beneficiary. In some cases, this can cause the older policy to actually lapse. When that policy lapses, then there is no additional money to pay for the new policy, so that policy also goes away. In the end, this can leave policyholders with little or nothing to leave loved ones.

It was alleged that Prudential agents routinely churned policies as a way of boosting sales commissions. Agents would write the new policies, pay for them with the cash of older policies, and reap the commissions for writing a new policy. Agents also make bonuses from insurance companies based on the number of polices they write. So, churning more and more policies brought agents extra bonuses from the insurance company.

Typically, when money from an existing life insurance policy is taken in cash or to be used for other purposes, the customer must sign a form approving the use of the policy's cash value. However, allegations were made against Prudential that agents would hide the forms that needed to be signed as typical paperwork. Customers were not fully informed of the documents they were signing. They were made to believe that forms that allowed the use of cash value of existing policies to be used to purchase additional insurance were simply routine forms that had to be signed. In addition, others have alleged that Prudential agents got customers to sign blank forms, and filled in the information to take money from existing policies later.

It is alleged that the churning of older polices is not the only deceptive sales practice undertaken by Prudential agents. Agents also told customers that they would only have to pay premiums for a certain number of years on certain life insurance polices. The problem, however, was that Prudential continued to bill some of these customers for life insurance premiums after the specific time period had ended. Some customers who refused to pay the additional premiums had the money deducted from the cash value of the policies. This lowered the overall value of the life insurance policy paid to beneficiaries when the insured died.

Customers were also not told that policies that do allow for premium payments for a certain amount of years are typically based on the interest rates that the cash value of polices earn. If the interest rates drop, then the money earned which pays the premiums may not be enough. In this case, the policyholder must pay the difference or risk having the policy lapse. This, of course, will leave the customer without life insurance. This information must be disclosed to customers. They cannot simply be told that no payments will be needed after a set amount of time. They must be informed what factors are associated with potentially not owing additional premiums.

Some customers alleged that when they received notices that their existing policies were due to lapse, or that they owed money to their existing policies that had been borrowed to pay for new policies, they were further deceived. Customers have stated that they were told that such notices were nothing to worry about. They were told that their life insurance policies were fine.

Finally, one other deception that is alleged against Prudential agents is the selling of life insurance products disguised as investments. For examples, agents would state that they were selling clients an investment to save for the cost of insurance for their children. The problem, however, was that the so-called investment was nothing more than a life insurance policy which built cash value. The deception came because clients did not understand that they were building cash value, but they were also paying for the cost of life insurance. This may have been life insurance that the customer did not want or need. The money that was used to directly purchase the life insurance does not go into the cash value, meaning that customers lost this money. It is also worth noting that many states actually state that insurance agents cannot call an insurance product an investment.

Beginning in the mid 1990s, lawsuits began springing up trying to recoup money lost by Prudential customers. The lawsuits alleged the many deceptive tactics used by agents to churn policies and put more money in their pockets. States began to take notice and investigate the allegations. In the end, Prudential was fined more than $50 million by several state insurance regulators. In addition, the National Association of Securities Dealers fined Prudential an additional $20 million.

The life insurance company also settled a class-action lawsuit based on all cash value life insurance policies bought between 1982 and 1995. This covered 10.7 million policies. The company eventually paid out more than $2.8 billion dollars to policyholders. This was in addition to the fines from regulatory bodies.

However, it is worth noting that many have stated that the process of getting monetary compensation for alleged deceptive practices was not as easy as simply asking for the money. There are many stories of clients being asked to fill out pages of forms explaining how they lost money due to negligence on the part of Prudential agents. In addition, some customers complained that they compensation they received, which in some cases amounted to less than $100, was not nearly as much as they lost. The customers were able to appeal any decision made about the compensation they should receive. However, some customers reported being so tired from all of the maneuvering, that they simply accepted the money that was offered.

In addition, even the compensation process was marked by allegations of wrong- doing and lawsuits. Several Prudential employees allege that they were told to process claims faster than would allow for proper investigation of claims. They even alleged that there were contests to see who could process an individual claim in the shortest amount of time. Some of the employees filed suit stating that they were harassed for reporting problems involved in the claims process.

Currently, there are no pending lawsuits against Prudential based on deceptive life insurance sales practices. The company has also announces changes to its sales mangers. Managers are no longer paid just on sales commissions. They are also paid based on the number of existing clients they keep, the quality of the people they hire as agents, and conserving the cash value of customers' policies.