Fallen Soldiers' Families Denied Cash Payout as Insurers Profit
By David Evans - Jul 28, 2010 10:00 AM EDT Wed Jul 28 14:00:00 UTC 2

Duping Families of Fallen Soldiers

Cindy Lohman holds a photo of her late son, Ryan in Frederick, Maryland. Photographer: Bill Cramer/Bloomberg Markets via Bloomberg
Chart: A Prudential Alliance Account sample 'check'
A Prudential Alliance Account sample 'check'

A sample "check" for a Prudential retained asset account bearing the name of JP Morgan Chase. Photographer: David Evans/Bloomberg

The package arrived at Cindy Lohman’s home in Great Mills, Maryland, just two weeks after she learned that her son, Ryan, a 24-year-old Army sergeant, had been killed by a bomb in Afghanistan. It was a thick, 9-inch-by- 12-inch envelope from Prudential Financial Inc., which handles life insurance for the Department of Veterans Affairs.

Inside was a letter from Prudential about Ryan’s $400,000 policy. And there was something else, which looked like a checkbook. The letter told Lohman that the full amount of her payout would be placed in a convenient interest-bearing account, allowing her time to decide how to use the benefit.

“You can hold the money in the account for safekeeping for as long as you like,” the letter said. In tiny print, in a disclaimer that Lohman says she didn’t notice, Prudential disclosed that what it called its Alliance Account was not guaranteed by the Federal Deposit Insurance Corp., Bloomberg Markets magazine reports in its September issue.

Lohman, 52, left the money untouched for six months after her son’s August 2008 death.

“It’s like you’re paying me off because my child was killed,” she says. “It was a consolation prize that I didn’t want.”

As time went on, she says, she tried to use one of the “checks” to buy a bed, and the salesman rejected it. That happened again this year, she says, when she went to a Target store to purchase a camera on Armed Forces Day, May 15.

‘I’m Shocked’

Lohman, a public health nurse who helps special-needs children, says she had always believed that her son’s life insurance funds were in a bank insured by the FDIC. That money -- like $28 billion in 1 million death-benefit accounts managed by insurers -- wasn’t actually sitting in a bank.

It was being held in Prudential’s general corporate account, earning investment income for the insurer. Prudential paid survivors like Lohman 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings.

“I’m shocked,” says Lohman, breaking into tears as she learns how the Alliance Account works. “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. Is there anything lower than that?”

Millions of bereaved Americans have unwittingly been placed in the same position by their insurance companies. The practice of issuing what they call “checkbooks” to survivors, instead of paying them lump sums, extends well beyond the military.

Touching Americans

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.

Newark, New Jersey-based Prudential, the second-largest life insurer, holds payouts in its own general account, according to regulatory filings.

New York-based MetLife has told survivors in a standard letter: “To help you through what can be a very difficult, emotional and confusing time, we created a settlement option, the Total Control Account Money Market Option. It is guaranteed by MetLife.”

No FDIC Insurance

The company’s letter omits that the money is in MetLife’s corporate investment account, isn’t in a bank and has no FDIC insurance.

“All guarantees are subject to the financial strength and claims-paying ability of MetLife,” it says.

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. http://www.bloomberg.com/news/.....rs-boost-profit.html

This is standard practice. If they had written them a check, there would be screams from the politicians that they had no right to hand them a check because "the might not have checking accounts!!!!!!!!!!" GODDAMN THE BIG INSURANCE COMPANIES!!!!!!!!!

Listen, I have compassion for the loss of a child. My sister died when she was 12 and my parents were never the same. But it isn't the life insurance company's fault. If you want the proceeds FDIC insured you simply open 4 bank accounts in four separate banks by writing four separate checks for $100,000.00

lets lash out at the insurers now, in a misplaces attempt to lynch some business somewhere.

However (liberals wouldn't know this because they either are not responsible for their own retirement savings, or are too stupid to know this) most of our retirement accounts are in non-FDIC insured investments. You would have to be a chump to think that you can ever gain by sticking your dough in an FDIC insured savings account, and unfortunately politicians want us all to be suckers like that, while they stick their money into higher yielding accounts (don't forget, to them we are all just stupid.)