[Vision2020] Life Insurance Firms Profit From Death Benefits

Sat Jul 31 05:29:22 PDT 2010

"Survivors of service men and women are told they'll get a $400,000 life
insurance payout. They don't. Instead, Prudential - which has a government
contract to provide life insurance for military families - keeps their
money."

"But the money isn't in a bank, and it's not protected by FDIC insurance.
None of these facts are spelled out to the survivors; the details are often
hidden in fine print."

Courtesy of NPR at:

http://www.npr.org/templates/story/story.php?storyId=128799983
<http://www.npr.org/templates/story/story.php?storyId=128799983&ps=cprs>
&ps=cprs

Life Insurance Firms Profit From Death Benefits

Life insurance companies delay issuing death benefits owed to families of
service members and others by promising to hold the money in safekeeping, an
investigation by Bloomberg Markets magazine found. Senior writer David Evans
and Cindy Lohman, whose son was killed in Afghanistan, discuss the findings
with NPR's Robert Siegel.

Millions of Americans are being duped by life insurance companies that have
figured out a way to hold onto death benefits owed to families. MetLife and
Prudential lead the way in making hundreds of millions of dollars in secret
profits every year on money that belongs to relatives of those who die, an
investigation by Bloomberg Markets magazine found. Among the people being
tricked are parents and spouses of U.S. soldiers killed in battle in Iraq
and Afghanistan.

Survivors of service men and women are told they'll get a $400,000 life
insurance payout. They don't. Instead, Prudential - which has a government
contract to provide life insurance for military families - keeps their
money.

Families are surprised when they receive what looks like a checkbook. In
documents, Prudential promises to hold the money in safekeeping for as long
as families would like, saying it will pay them 0.5 percent interest. What
Prudential doesn't disclose is that it is keeping survivors' money in
Prudential's own corporate investment account, where the company is earning
five to 10 times as much as it pays to families. The so-called checks have
JPMorgan Chase printed on them, but they cannot be used as regular checks.
Instead, they are to be submitted back to Prudential to get any money.

But the money isn't in a bank, and it's not protected by FDIC insurance.
None of these facts are spelled out to the survivors; the details are often
hidden in fine print.

Nor are families told that they could earn more than twice as much interest
by opening FDIC-insured money market accounts at banks across the country.
Families of fallen soldiers say they often don't want to touch the
"checkbooks" because they view them as payments in return for their
sacrificed child. As a result, Prudential holds onto the death benefits,
often for a year or more. 

"I'm shocked," says Cindy Lohman, a Maryland woman whose son, Ryan, was
killed in Afghanistan in 2008. "It's a betrayal. It saddens me as an
American that a company would stoop so low as to make a profit on the death
of a soldier."

Millions of Americans have unwittingly been placed in the same position by
their insurance companies. The practice of issuing so-called "checkbooks" to
survivors, instead of paying out lump sums, extends well beyond the
military. In the past decade, this tactic has become standard operating
procedure in an industry that touches virtually every American: There are
more than 300 million active life insurance policies in the U.S. MetLife
alone holds $10 billion in death benefit money that belongs to grieving
families. MetLife makes $100 million to $300 million a year by investing,
mostly in the bond market, money that belongs to survivors.

Insurance companies say they're providing their customers with a service.
Prudential's checkbook accounts are helpful to families of soldiers, says
company spokesman Bob DeFillippo. 

"For some families, the account is the difference between earning interest
on a large amount of money and letting it sit idle," he says. 

MetLife spokesman Joseph Madden says his company's customers are very happy
with the system. 

"The feedback from customers has been overwhelmingly positive," he says. "We
afford beneficiaries security, peace of mind and time to make an informed
decision - while earning interest in the interim."

How big is the unregulated quasi-banking system operated by insurers? There
are now more than a million of these accounts holding more than $28 billion
at 130 life insurance companies.

"It's outrageous that they're profiting off other people's grief," says Mark
Umbrell in Doylestown, Pa. His 26-year-old son, Colby, an Army Airborne
Ranger who earned a Bronze Star and a Purple Heart, was killed in Iraq in
May 2007. Umbrell was among those who got a "checkbook" account. "I think
we're being taken," he says.

The question for Umbrell, Lohman and a million others with these accounts is
whether anyone will hear their cries. State bank regulators say if there are
to be any changes, they should be made by their counterparts at state
insurance departments. Officials at those state agencies often say they
don't even understand what the insurance industry is doing with these
"checkbook" payouts. 

Just six states had any rules for retained-asset accounts as of July 2009,
according to the National Association of Insurance Commissioners. Arkansas,
Colorado, Kansas, Nevada, North Carolina and North Dakota require insurers
to disclose fees and interest rates and to tell survivors they may withdraw
all of the money by writing a single check. Maryland, which isn't on the
NAIC list, also has rules. 

Pennsylvania Insurance Commissioner Joel Ario, whose state has no rules for
retained-asset accounts, says he has asked his staff to prepare a regulation
forbidding insurance companies from using such accounts as the default
method of paying a death.

"It's flown under the radar," says insurance law professor and author
Jeffrey Stempel. "Regulators have not done their job."

Until public officials wake up, the bereaved will remain a secret profit
center for the life insurance industry.

-----------------------

The VA's Response

Below is a statement from Mike Walcoff, acting undersecretary for the
Veterans Benefits Administration, in response to the Bloomberg Markets
magazine report.

"The primary goal of the Government Life insurance programs for
Servicemembers and Veterans has always been to ensure the financial security
of their families and loved ones during a very difficult time. The
possibility that life insurance companies are profiting inappropriately from
these Servicemembers' sacrifice is completely unacceptable. The VA is
conducting a full investigation into the life insurance companies and their
procedures in this program to ensure that survivors are fully protected and
being treated fairly with the utmost care and respect. The VA is deeply
concerned that military and Veteran families may potentially be harmed in
some way by the use of the Alliance Account program. At the conclusion of
the investigation VA will determine whether to continue the use of the
Alliance Account program. Additionally, VA will be contacting the
approximately 10,000 current survivors to remind them of their options under
the SGLI program."

An audio broadcast is available at:

NPR's "All Things Considered"

http://www.npr.org/templates/player/mediaPlayer.html?action=1
<http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=fa
lse&id=128799983&m=128830024> &t=1&islist=false&id=128799983&m=128830024

Seeya at Farmers Market, Moscow.

Tom Hansen

Moscow, Idaho

"Patriotism is not a short and frenzied outburst of emotion but the tranquil
and steady dedication of a lifetime."

-- Adlai E. Stevenson, Jr.

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