The US Division of Labor (DOL) has introduced a settlement that may see Prudential Insurance coverage Firm of America (Prudential) revise its life insurance coverage practices. This follows a federal investigation that discovered the insurer had denied claims based mostly on members’ failure to show proof of “insurability” when making use of for protection.

New Jersey-based Prudential, a subsidiary of Prudential Monetary, collected life insurance coverage premiums for “prolonged durations” however denied quite a few claims on insureds’ deaths, citing the insurability concern. That is based on a DOL press launch, shared with Insurance coverage Enterprise on April 19, 2023.

DOL investigation into Prudential “insurability” claims denials

An investigation by the DOL’s Worker Advantages Safety Administration (EBSA) discovered that Prudential had supplied group life insurance policies to companies, with members in a position to allow payroll deductions to pay for extra supplemental protection. EBSA’s investigation unearthed that Prudential rejected greater than 200 claims regarding the supplemental protection, with the reason is members “failed to supply proof of insurability”, the DOL replace stated.

“This egregious follow left grieving households with out the life insurance coverage for which their family members had paid, in some instances, for a few years,” stated Solicitor of Labor Seema Nanda. “Following our investigations, Prudential has agreed to deal with this follow and make sure that beneficiaries will not be harmed within the occasion employers fail to confirm that the members’ proof of insurability was authorized previous to accumulating premiums.”

Different life insurers have additionally been discovered to interact in comparable practices, based on the DOL.

“We’d urge all insurers to look at their practices to make sure that they aren’t engaged in comparable conduct,” Nanda stated.

Prudential and DOL settlement phrases

Below the settlement phrases, Prudential will likely be prohibited from denying a beneficiary’s declare based mostly on a scarcity of insurability proof the place premiums have been collected for greater than three months, based on the DOL press launch.

The settlement additionally provides extra protections to present members, the DOL stated, which is able to make sure that protection can’t be denied greater than a yr after they started paying premiums based mostly on insurability, else based mostly on proof that they had been now not insurable after they began to make premium funds.

“When employees pay life insurance coverage premiums, they need to be assured that their beneficiaries will get the advantages they bought to supply for his or her monetary safety,” stated Assistant Secretary for Worker Advantages Safety Lisa M Gomez. “The Worker Advantages Safety Administration will take applicable motion in opposition to any insurance coverage firm that collects common premium funds from plan members and later performs a sport of ‘gotcha’ to wrongfully deny advantages based mostly on technicalities like ‘insurability’ after the participant passes away.” 

The division has been knowledgeable that Prudential will voluntarily reprocess denied claims from June 2019 onwards and can present advantages for claims beforehand refuted based mostly “solely on lack of proof of insurability”, the DOL stated.

The settlement additional said that group policyholders that gather premiums, together with employers which have sponsored plans, may very well be chargeable for supplemental protection claims from beneficiaries in the event that they failed to tell members that proof of insurability had not been authorized by the insurer.

Prudential stated in an emailed assertion: “Constructive engagement with our regulators is a vital part of doing enterprise the precise approach, which is foundational to our strategy to delivering for our clients, whereas fulfilling our regulatory obligations. We have now labored with the Division of Labor to resolve this matter. We’re addressing this with supplemental group life insurance coverage clients which can be impacted and offering clear steerage to our clients relating to the duties for sustaining proof of insurability.”