A New Jersey insurance regulator has concluded that Prudential Financial Inc properly handled life-insurance benefits in a controversial matter involving a U.S. soldier killed in Afghanistan, the Wall Street Journal said on Tuesday.

The insurer's payout method drew wide attention after investigators began probing whether life insurers are defrauding families of deceased military personnel by siphoning millions of dollars of death benefits for themselves.

At issue is whether insurers keep money in potentially risky retained asset accounts that they control and pay out low yields to survivors, rather than pay out lump sums when policyholders die.

Following an article in Bloomberg Markets magazine about the practice, the U.S. Department of Veterans Affairs said it began a review, and New York Attorney General Andrew Cuomo subpoenaed eight insurers, including Prudential and MetLife Inc.

The article featured the mother of the killed soldier who complained about the accounts, including that two retailers had rejected her checks.

According to the Journal, in a response to a request from New Jersey insurance regulators, Prudential detailed in an August 4 letter that 25 checks from the mother's account were cleared from October 2008 through April 2010, with most of the proceeds withdrawn at that point.

This letter satisfies the department that Prudential acted properly and further reassures this department of the value of 'retained asset accounts,' Thomas Considine, New Jersey's commissioner of banking and insurance, told the newspaper in an interview.

A Prudential spokesman told the newspaper it processed 84,000 drafts for its retained-assets account program in 2009, with few people reporting any problems.

Prudential is based in Newark, New Jersey. Neither it nor Considine's office immediately returned requests for comment by Reuters.

(Reporting by Jonathan Stempel in New York; Editing by Dhara Ranasinghe)