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Does Your Insurance Company Owe You Money?

NEW YORK -- In theory, tens of thousands of people stand to benefit from the class-action lawsuits brought against several major life insurance companies.

Prudential, Metropolitan Life, New York Life and Phoenix Mutual have agreed to nationwide restitution, after being charged with misleading sales practices. Prudential -- which recently agreed to pay $90 million in legal fees -- started notifying 10.7 million policyholders last week.

Cases are pending against John Hancock and Equitable, among others.

But for one reason or another, many people who ought to benefit from the settlements don't. The insurance companies mail out information. Bilked policyholders, however, may not apply for the reparations they deserve.

Several obstacles stand between them and their money, says insurance fraud consultant Richard Sabo, of Money Concepts in Gibsonia, Pa., who helps policyholders recover their losses.

For one thing, you have to know you've been bilked. Some policies are fine. Others are in a slow state of collapse and it will be years before their unlucky owners find out.

For another, you have to understand the information the insurance company sends you. New York Life's "explanatory" documents might as well have been written in Sanskrit. Pru's is a little better but not much.

The Pru settlement requires you to accept or reject the terms by Dec. 19. If you accept, you give up your right to sue -- but at this point, you may not know whether you have a case.

Furthermore, a court won't decide until perhaps February whether these proposed terms are final. So you're deciding in advance.

If you call your insurance agent for enlightenment, he or she may tell you that the class action doesn't apply to you, even though it does.

A reader in West Mifflin, Pa., who doesn't want to be identified, bought what he thought was a $125,000 single-premium New York Life policy for his wife. She didn't need life insurance, he says. The policy was sold as an investment. That in itself can be a deceptive act.

He put $40,000 into the policy's cash value, which was supposed to grow at a high rate of interest, tax-deferred. That was billed as his total cost. But there's no guarantee. If interest rates fall, he may have to start paying premiums out-of-pocket.

When he got a mailing about New York Life's class-action settlement, he asked his agent about it. "I was told that the letters didn't apply to me, that I should pitch them," this reader says. It took him a while to realize that the agent was wrong.

Sabo says that he has a lot of cases like this. The buyers didn't fully understand their insurance policy in the first place. Now they don't know whether they've been deceived or not. Others are simply too embarrassed to complain.

To find out if your policy will pay as expected, you have to test it. Ask for a "current illustration" projecting your policies' future worth and the number of future premium payments you have to make.

You may discover that the policies will lapse if you don't put up more money. You may also find that you'll have to pay premiums for many years more than you thought.

If you're borrowing from an old policy to pay for a new one, compare the cash in the old policy with the new one's future cost. You may discover that this scheme won't work.

Amazingly, much of the so-called "restitution" -- in all the big settlements, so far -- involves borrowing from the insurance company or buying more insurance and annuities. That's not what you need when you've been deceived.

For true restitution, you need money back or your former policy restored. That means suing or going to arbitration where you'll have to prove your claim.

A current policy illustration might help your case. So might the records that the insurer has in your file.

For example, there should be an "agent's report" on your purchase. If the agent claimed that you were going to pay for the policy out-of-pocket, when in fact you paid by surrendering or borrowing from another policy, that's evidence of fraud, Sabo says.

You should have this information before deciding whether to accept a class-action settlement, and certainly before going to arbitration. When you ask, however, you might get a runaround. Your file might also be sanitized before the insurer sends it out.

Prudential says it will disgorge the full file, if a policyholder asks. But the carefully worded class-action settlement allows some information to be withheld.

Last month, the lead attorney for the Prudential policyholders, Melvyn Weiss, told me that wasn't the intent and that the wording would be changed. But the court now has the proposed agreement and nothing's changed yet.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.