The bad news continues for Prudential Insurance Co. as the National Association of Securities Dealers Inc. (NASD) levied a $20 million fine on Pruco Securities on July 8 for deceptive sales practices in variable life insurance products.

Variable life insurance policies are considered securities because of their investment risk. Such policies provide a variable death benefit whose value is tied to separate accounts that the insurance company invests in securities. Thus, such policies are overseen by NASD.

Prudential has set aside reserves to cover the cost of these huge fines, so the impact on operations is expected to be minimal. The fine is part of an ongoing class action settlement that charged the company with misleading customers. Prudential has already paid more than $70 million in fines to state insurance regulators and $1 million to federal authorities for destroying documents pertaining to the sales abuses.

NASD found that sales of more than 200,000 Prudential variable life insurance policies sold during that period violated association rules and federal securities law. NASD cites the company for:

• Inducing customers to roll over their Prudential life insurance policies to purchase new variable life insurance policies by mispresenting the cost of the new policies. Agents were telling customers that the cash value and dividends in their existing policies could be used to pay for the new policies, when in fact there was not enough to pay the new premiums (a practice known as churning). As a result, both old and new policies often lapsed because the policyholder could no longer to pay the newer, and more expensive, premiums.

• Telling customers that premium payments would vanish after a certain number of years.

• Telling customers that variable life insurance was not insurance but an investment, savings, or retirement plan, which is illegal to do.

• Selling variable life policies to people for whom the product was unsuitable, including customers who either didn't want insurance or didn't know they were actually buying insurance.

• The use of misleading sales material that did not have the required NASD approval.

• Failing to establish and maintain appropriate supervisory procedures for its agents.

• Allowing agents to sell variable life insurance without holding the required securities license.

• Neglecting to file — or inaccurately filing — disciplinary forms that allow the public access to information about registered representatives.