Are the Horses Already Gone?

Katt, Peter C.
December 1996
Journal of Financial Planning;Dec1996, Vol. 9 Issue 6, p22
Academic Journal
Prudential Insurance Co., the largest life insurance company in the United States, has been the subject of a multi-state task force examining their market conduct because many complain have been filed against them, including a consolidated class action suit. There are three major market misconduct claims against Prudential. First, internal policy replacements with agents using the dividends from existing Prudential policies to pay the premiums for a new Prudential policy. The original promise of free insurance hasn't come true because dividends declined, making policy loans necessary in many cases. This is commonly referred to as piggybacking. Second, vanish premium designed policies that now need significantly more premiums, again because of declining dividends. And Third, life insurance sold to consumers who expressly wanted to purchase an investment product to enhance their retirement income. Class actions against life insurance companies, especially mutual companies that are owned by their policy owners, presents a unique situation. Damages are paid out of profits, thereby reducing future dividends. The damaged are paying their own damages.


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