Insurance Companies Shamelessly Profit From The Death of Servicemembers

September 18, 2010 (Press-News.org) Who should be allowed to profit from the death of Soldiers, Sailors, Airmen, and Marines? The question is almost so appalling as to be absurd. And yet, those are the accusations made by family members, that insurance companies are taking advantage of the death of military personnel to make substantial profits on their life insurance proceeds.

Prudential Financial Inc. is a government contractor handling term life insurance policies for military personnel; it is called Servicemember Group Life Insurance (SGLI).When servicemembers die, though, the company does not pay the benefits to the intended beneficiaries of the policy.Instead, this insurance company pays these widows, their children, or these parents in a manner that appears to be both deceptive and greedy.

The insurance company provides a 'checkbook' to the deceased military member's survivor-beneficiary, and the insurance company tells the grieving survivor that the company will keep the proceeds in a convenient, secure, interest-bearing account for the survivor. The insurance company issues documents resembling checks, leaving the grieving survivors to believe that the funds have been placed in a bank account of some sort that belongs to them, as the beneficiaries of the life insurance policy. Oftentimes beneficiaries leave these funds in these accounts for months or even years; understandably deciding what to do with these insurance proceeds is not, for many months, a top priority for the grieving.

In establishing this arrangement, though, Prudential has been accused of leaving out significant details. Notably, as stated in a pending lawsuit against the insurance company, the survivors who make up the plaintiff class in this case state that Prudential does not make it clear to the beneficiaries that the company is not transferring these funds to an FDIC-insured bank account; instead, Prudential is placing these funds into its own general corporate account.

Though the survivors receive a small amount of interest on the accounts, it is only a fraction of the interest that Prudential earns. For example, the policy beneficiaries might be given a one half percent annual interest rate, while Prudential's corporate account earns nearly five percent. The difference provides for significant profits for the insurance company, money that could go to the surviving family members, if they were properly informed of this scam.

The documents that appear to be checks are, in fact, little more than company-issued IOUs, branded with a bank name. The surviving family members state that these 'checks' cannot be used at retail establishments. If the 'checks' were to be deposited in a recipient's bank account, Prudential would have to send money to the recipient bank in a cumbersome process.

No public statistics are available regarding the true value of these accounts to insurance companies. According to Bloomberg news service, insurers are holding on to at least $28 billion dollars owed to survivors in these sorts of accounts (known as retained-asset accounts). At five percent interest, the profits that such assets generate are huge.

The Problems with Retained-Asset Accounts

Prudential has responded to press inquiries on this practice by defending them, suggesting that grieving family members enter into this disadvantageous financial arrangements freely and voluntarily. In its public statements, the insurance company has not demonstrated that it understands the immorality, deviousness, and perhaps illegality of this practice.

Life insurance policies, like SGLI, are intended to provide financial support for the families and loved ones of those who have died. Insurance companies are expected to make a profit by investing premiums, thereby producing income in excess of the expense of payment of benefits and other costs. Prudential is additionally profiting, though, from military personnel who have lost their lives in the service of their country. As this lawsuit alleges, the insurance company is cheating the loved ones of dead servicemembers by retaining substantial profits for itself rather than offering the survivors the full benefits of the investment of the proceeds of these policies.

By issuing documents that appear to be checkbooks, the insurance company gives the appearance of maintaining personal accounts on behalf of the survivors. While the insurance company claims that it fully discloses the nature of the accounts, one can hardly expect the bereaved to read the fine print explaining the particulars of the arrangement.

Prudential asserts that these practices are in compliance with state insurance laws and industry customs; however, the insurance company's practices have not yet been considered by our courts. At least a handful of people have sued insurance companies regarding these deceptive practices, claiming that these companies have stolen account earnings from beneficiary families.

Essentially, the insurance companies are deceiving family members into believing that they are receiving a bank account that contains the insurance proceeds from their deceased family member's life insurance. The surviving family members are being told that they are being given checks to write on this lump sum amount. These insurance company 'checkbooks' are not covered by the regulations and protection in the banking system. These accounts are not FDIC insured; they are only subject to the guarantee of the insurance company offering the policy. Every servicemember elects SGLI expecting the full lump sum will go to the designated beneficiary; the insurance company is using this ruse to prevent that, for their financial benefit.

The Department of Veterans Affairs has sent letters to families with these accounts, making it clear that they have the right to withdraw funds immediately and to move the money to any bank account. Several individuals and organizations have called for further inquiry, including U.S. senators, U.S. representatives, state officials, and officials from the Department of Veterans Affairs.

These inquiries and notices help to correct this despicable conduct towards our military heroes' families, but they will not compensate the surviving family members for the insurance company's prior misconduct. Those who have been the victims of these deceptive practices may have further legal recourse. For more information regarding the law on these matters, speak with a knowledgeable attorney.

Article provided by Patrick J. McLain
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