Insurers ‘Blood-Suck’ Death Benefits From Grieving Military Families
July 29, 2010
(ChattahBox)—Bloomberg has a must-read and shocking article, on the methods two major life insurance companies use to routinely scam and mislead families of fallen soldiers. The death benefits are placed in what’s called retained-asset accounts, allowing insurers to hang onto the money in their general corporate accounts and earn a profit, while paying families minuscule, below market interest rates and misleading them about the guarantees and security of the funds. The retained-asset accounts are portrayed to grieving families as convenient money-market checkbooks. But the money is not deposited into a separate bank account and is not guaranteed under the FDIC. Oh, and the so-called checking accounts don’t come with real checks, but rather IOU draft instruments. Two companies using the misleading accounts, MetLife and Prudential, are now under scrutiny for scamming military families and federal employees. Stephen Wurtz, deputy assistant director for insurance at the VA, is condemning the shady practices of Prudential, as an unseemly ploy to “blood-suck” money from soldiers’ families.
As Bloomberg reports, the problem with the fake checkbooks is compounded by a complete lack of oversight by insurance regulators, as well as ignorance about the way retained-asset accounts work, at a time when the practice is growing:
“In the past decade, these so-called retained-asset accounts have 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., and the industry holds $4.6 trillion in assets, according to the American Council of Life Insurers. Insurance companies tell survivors that their money is put in a secure account. Neither Prudential nor MetLife Inc., the largest life insurer in the U.S., segregates death benefits into a separate fund.”
The insurers rake in profits by cheating survivors out of competitive interest rates. And by misleading families about the true nature of the accounts, so as to hold on to their money as long as possible. Survivors awarded death benefits in the fake checking accounts can simply use one the of drafts to withdraw the entire amount, and deposit the funds in a real bank secured by FDIC guarantees. But the insurers do their best to hide that fact from families.
“Both MetLife, which handles insurance for nonmilitary federal employees, and Prudential paid 0.5 percent interest in July to survivors of government workers and soldiers. That’s less than half of the rate available at some banks with accounts insured by the FDIC up to $250,000.”
Wurtz is disgusted by the practice of misleading military families into thinking they have a secure money-market account. “Uncle Sam is ripping off their own,” Wurtz says. “My wife would get the money, and they would blood-suck some of it out of her.”
Read the entire Bloomberg expose here. It’s eye-opening.