What Is a Prudential Alliance Account?

Definition

A Prudential Alliance Account is one of several options that beneficiaries of some Prudential life insurance policies can choose for their death benefit. If chosen, the account receives the death benefit and the beneficiary can make withdrawals via check. The Alliance Account option is often associated with the military but is not exclusive to the military.

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Key Takeaways

  • Prudential Alliance accounts are retained asset accounts, which means Prudential sends a life insurance benefit to the account, which is typically owned by the beneficiary.
  • An Alliance Account usually earns interest.
  • Recipients of an Alliance Account benefit payment can choose to receive their money in one of four ways, generally speaking.
  • Prudential has come under fire for the way it's managed Alliance accounts for the military.

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.

Note

In theory, depositing a death benefit to a retained asset account instead of issuing a lump-sum payment directly to the beneficiary gives the insurer an opportunity to make money by investing the retained asset account funds.

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.

Note

Department of Veterans Affairs (VA) Alliance accounts are not FDIC-insured.

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)

What Is an Alliance Account from Prudential?

A Prudential Alliance Account is a checking-style account. It is funded by a life insurance benefit payment that comes in a lump-sum or is divided up into installments. Generally speaking, account owners are the beneficiary, and they can withdraw the money via check.

How does a retained asset account work?

A retained asset account is the technical name for accounts like Prudential's Alliance Account. In addition to being the destination for beneficiary payments, retained asset accounts typically accrue interest.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Washington State Office of the Insurance Commissioner. "Life Insurance Payouts and Retained Asset Accounts."

  2. United States District Court, E.D. Pennsylvania. "Huffman v. Prudential Insurance Company of America, Slip Copy (2017)," Page 1.

  3. Federation of Regulatory Counsel. "Retained Asset Accounts."

  4. State of New Jersey. "Prudential Group Life Insurance Payment Options."

  5. Bloomberg. "Veterans Agency Made Secret Deal With Prudential."

  6. Prudential. "Prudential's History with the Military."

  7. Prudential. "An Open Letter to the Military Community from Prudential Financial."

  8. Department of Veterans Affairs. "8238A; Claim for Family Coverage Death Benefits," Page 1.

  9. National Conference on Public Employee Retirement Systems. "Beneficiary Statement—Quick Start Guide," Page 3.

  10. Top Class Actions. "Prudential Settles Military Death Benefits Class Action Lawsuit."

  11. United States District Court, E.D. Pennsylvania. "Huffman v. Prudential Insurance Company of America, Slip Copy (2017)," Page 8-9.

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