What Is a Prudential Alliance Account?

How the Prudential Alliance Account Works

Prudential's Alliance Account is a retained asset account, a type of checking account created by an insurer for the purpose of paying benefits. The insurer establishes an account in the name of a beneficiary and then deposits the proceeds of a life insurance policy. The beneficiary can withdraw all or a portion of the funds at any time by writing a check. The insurer pays interest on the funds that remain in the account.

In general, you can choose to receive your payments one of four ways:

• One lump-sum
• Installments at a fixed amount or over a certain period of time
• Installments for the rest of your life
• Interest-only payouts
  

Life insurers developed the retained asset account at least two decades ago as an alternative to a lump-sum payment made via a bank check. This type of account can be useful when a survivor is too distraught at the death of a family member to make financial decisions. The beneficiary can leave the funds in the account and decide what to do with them later. In the meantime, Prudential invests the money and earns interest from it.

Example of Prudential Alliance Accounts

Say a loved one of yours dies, and you are the beneficiary. You have the option of depositing your benefit into an Alliance Account. You pick the Alliance Account and request a lump-sum payment. After the paperwork is processed and approved, Prudential deposits your benefit into your account. They then send you a checkbook you use to make withdrawals to pay for various expenses, and, in the meantime, the account earns a modest interest rate.

Prudential Life Insurance Policies for the Military

Since 1965, Prudential Insurance has administered life insurance policies sold by the VA to current and former members of the military. The VA offers two programs. The Servicemembers Group Life Insurance (SGLI) program covers active members of the U.S. military. The Veterans Group Life Insurance (VGLI) program covers U.S. military veterans.

Prudential has been criticized for the way it has handled death benefits under the military life insurance programs. In 1999, a Bloomber article claimed Prudential and the VA made a verbal agreement allowing the insurer to distribute lump-sum payments into Alliance accounts. Beneficiaries expected to receive a check for a lump-sum payment. Instead, they received a checkbook and information about their Alliance Account.

Prudential's use of Alliance accounts to pay death benefits under SGLI and VGLI policies came to light in 2010, and a media firestorm erupted. Prudential and the VA were accused of engaging in deceptive practices and taking advantage of service members' survivors. They were also denounced for putting benefits at risk by placing them in accounts not insured by the FDIC.

Changes to VA Benefits Payments

In late 2010, the VA and Prudential changed the way benefits are paid to survivors of military members. Beneficiaries now have four options to choose from when applying for benefits. They can receive payment by any of the following:

• An Alliance Account
• Check for a lump sum payment
• Electronic transfer into a bank account
• Installment payments over 36 months 

If the beneficiary does not make a choice, Prudential will deposit the funds into an Alliance Account.

Prudential Alliance Account Drawbacks

For beneficiaries, retained assets accounts have some disadvantages.

Low Interest Rate

The interest rate paid on a retained asset account is relatively low, ranging (at times) from 0.25% to 0.50%. Beneficiaries may earn a better return by transferring the money into a certificate of deposit, money market fund, or other financial investment.

Not FDIC-Insured

Funds held by an insurance company are not insured by the FDIC. However, some states have a guaranty fund that will protect an account holder if the insurer becomes insolvent or is otherwise unable to pay benefits.

Not a True Checking Account

A retained asset account is a depository for life insurance proceeds only. It is not a true checking account. The account holder cannot deposit funds, say from a paycheck, into the account. Moreover, the "checks" may be drafts, which merchants may not accept in exchange for purchases.

Delayed Access

To utilize funds from the account, the survivor must obtain checks from the insurer, write a check on the account, and then wait to receive a draft.

Prudential Alliance Account Controversy

In 2014, beneficiaries of the Servicemembers Group Life Insurance and Veterans' Group LIfe Insurance policies filed a class-action lawsuit against Prudential. The plaintiffs alleged that the insurer had violated both federal law and the SGLI and VGLI contracts, and breached its contract by failing to pay benefits in lump sums. Prudential denied the allegations but settled the suit for $39.2 million.

In 2018, another class-action lawsuit against Prudential. The plaintiffs argued Prudential breached its fiduciary duty by sending benefits to an Alliance Account rather than directly to the beneficiary. The court determined that the insurer had breached its fiduciary duty to the plaintiffs when it paid benefits into Alliance accounts rather than as a lump sum as required by the benefit plans.

Frequently Asked Questions (FAQs)