Insurance companies defend making a profit on soldiers' death benefits!

[Better Believe It]

Making a profit on soldiers' death benefits
By Tony Capaccio and Patrick O'Connor
August 9, 2010

Why are large life insurance companies profiting from billions of dollars they hold on behalf of the families of fallen military service members?

Bloomberg Markets magazine senior writer David Evans posed that question in an article in its September issue. The article, which took a close look at practices at Prudential Financial, has sparked sharp criticism from Cabinet members, reform proposals from U.S. lawmakers, and a fraud investigation by the New York Attorney General.

Under scrutiny are so-called retained-asset accounts. More than 100 carriers use the accounts to earn income on $28 billion owed to beneficiaries. New York-based MetLife, the biggest U.S. life insurer, retains about $10 billion and was among the carriers subpoenaed by Andrew Cuomo, the New York Attorney General.

Many life insurance companies suggest to beneficiaries that as an alternative to taking a lump-sum payment of death benefits, they leave the bulk of the policy proceeds with the carriers.

Prudential and the other insurers give the recipients limited checkbook-like access to the funds and pay modest interest.

Meanwhile, the carriers can invest the money, obtaining a far higher return than what they offer to beneficiaries. Families often receive misleading guarantees about the safety of the accounts, which are held in corporate coffers, not in federally insured banks, Bloomberg Markets found.

A half-dozen members of President Barack Obama's Cabinet sit on an advisory council overseeing life insurance for military service-members. The last time the council met, in November, none of the Cabinet members attended the annual meeting. Aides accustomed to handling the issue for their agencies go as representatives.

"The advisory council gets briefed on what's going on, how much money is going out, how many death benefits," says John Gingrich, chief of staff for Veterans Affairs Secretary Eric Shinseki

Prudential, based in Newark, N.J., defended retained-asset accounts as helpful to survivors, especially the loved ones of soldiers.

"For some families, the account is the difference between earning interest on a large amount of money and letting it sit idle," company spokesman Bob DeFillippo told Bloomberg. Prudential follows the law, he added.

MetLife spokesman Joseph Madden says his company similarly adheres to legal requirements. Its customers appreciate its version of retained-asset accounts, Madden adds. Beneficiaries get "peace of mind and time to make an informed decision while earning interest in the interim."

Read the full article at:

http://www.msnbc.msn.com/id/38629691/ns/business-bloomberg_businessweek