This is starting to smell like a scam.
A Fallen Hero: How an Insurance Company Profited
A headline like that kinda gets your attention. Long story short it seems that when Sgt. Ryan Baumann, killed in Afghanistan his mother was unable to bring herself to seek the money. But when she tried to use it 6 months later she ran into problems.
She eventually filed, electing to receive a lump sum of $400,000. But the check never came. Instead, she received a check book and a packet from Prudential saying the money had been placed in its “alliance account” where it was “available immediately” and would “begin earning interest” right away.
Everything seemed fine, until she tried using the checks.
“I was told that the check could not be verified,” she said.
But here is where is it gets interesting. It seems that the Government was giving the money to a private third party to handle giving the money out. But not quite.
Evans’ six-month investigative report, appearing today in the magazine’s September issue, reveals that Cindy Lohman’s money was being held in Prudential’s general corporate account — accruing interest –most of it going to the insurance giant.
So if I understand this correctly the Government is giving SGLI money to third parties that are not only restricting handing out the money to the survivors while making a profit off the interest? (A rate of 5% compared to the .5% that Cindy Lohman account was being credited.)
I really do not want to jump the gun on this one but I have a bad feeling that I am right about this one.
Category: Society, Support the troops, Terror War
Why am I not surprised by this? Oh, wait.. because our government is run by a bunch of crooks who only think of what they can get out of any given situation.
Bastards
Of course you are right. What’s not to believe? This is our culture, this is America.
I would love to know when private companies started managing SGLI benefits. Have there been more cases like this?
Absolutely inexcusable if in fact Prudential was pulling this crap. They need to give the full $400K PLUS ANY INTEREST they “earned” on the backs of our fallen.
It is not uncommon at all for life insurance benefits to be paid out of the general assets of the firm. Prudential has been administering the SGLI program since its inception in 1965- this is nothing new.
According to the VA’s life insurance guide, payments due to death can be made to beneficiaries over 36 months or lump sum. Lump sum benefits are placed into the Alliance Account, and beneficiaries are given a checkbook to withdraw funds at their convenience. The handbook also states that the Alliance Account is guaranteed by Prudential- not the FDIC or any federal bank.
I don’t see a scam; I see uninformed beneficiaries and a Bloomberg reporter causing a panic.
However, I am puzzled as to why the checks she wrote were not accepted. THAT is worrisome. I would like to know more about that situation.
The ability for insurance companies to pay claims is measured by their financial stability ratings as measured by AM Best, an independent reviewer. Pru, along with the parent company of the firm I work for, is one of about a dozen life insurance companies given an A rating for 75 straight years. As the saying goes “past performance is no guarantee of future returns”, which is typically applied to mutual fund performance, but it applies to financial stability ratings also.
And, as I wrote at B5, if you have access to any funds held in a general account, you are better off getting it out and putting it into a seperate account. General account money is subject to the company’s creditors, so if Prudential goes bankrupt, the money in Alliance Accounts are at risk for being lost.
The problem I see, AF, is that the company *IS* making money and giving the survivors nothing out of it. That is wrong. To my knowledge, they already make money when the soldier is paying for the policy. A dead soldier’s benefits should not be reaping “reward” unless it is to the family. And 400k is alot of money to have been able to put into an IRA and collecting interest, yet no one mentioned that? Hmmm.
why the fuck is a lump sum not given to the benefiary to earn interest off of? why should pru be sucking interest off of it all while the family of a dead servicemeber bears the risk of a pru bankruptcy? this seems like blatant government and corporate abuse of the little guy.
I agree with AFSister, I think it’s more a case of the beneficiary not reading the voluminous disclosure literature than it’s a case of fraud on the part of Prudential.
Insurance companies aren’t banks – if you want to save money at little risk and low fees there are cheaper and more trustworthy ways of doing it than with an insurance company.
She probably tried to pass a check using one of those Veri-check things and that’s why the retailer wouldn’t take it. Checks on some investment accounts can’t be verified like that.
I don’t depend on any of my insurance products for anything except for insurance.
This is not new. One of my dearest buddies died of AO related cancer. His wife called when she got this insurance info and check book. I told her to go to the bank and write out the check for the full amount and have it deposited in your bank account to deal with later. She did and got the full amount. I don’t like that this happens as it probably does confuse some and lets the companies continue to make money on the money while the spouse/parents/what ever, get basically nil on interest and it is not insured so if the company goes under….your screwed. My wife has been advised to get to the bank fast and write out a check for the full amount, IMMEDIATELY.
based on comments.. I agree that the beneficiary needs to write as large a check as possible to her bank, wait the 10-14 days or whtever for the bank to verify and have the money in her account.
I don’t begrudge the insurance company the 5 percent they’re earning. They have to continue to make money or no monies are getting paid to anyone. There is no 2.7 Trillion sitting around to pay out in this sad instances. It has to continue to be earned.
DefendUSA:
Why wouldn’t the insurance company make money off of it? They are in business to make money- if they didn’t… they wouldn’t be in business. Interest rates are extremely low right now- some cash funds actually have negative returns because the paper being bought is paying so little interest, the fund companies can’t pay their expenses and still pay dividends to investors.
This is a life insurance policy, not a retirement account, therefore it is not eligible to be rolled into an IRA. The options upon distribution are spend it, buy your own life policy, or invest it (annuities, mutual funds, stocks, bonds, cash funds, etc.), but it cannot be put into an IRA no matter if you are a spouse or a non-spouse beneficiary.
J: She was given a lump sum; all lump sum distributions from SGLA are placed in Alliance accounts. Once there, the beneficiary can do what they want, when they want. The fact that she let it sit there is not criminal- it’s just not prudent.
Most people do not understand investment vehicles, and insurance products are one of the hardest to grasp. I recently spent about an hour or so explaining a cash account tied to our company’s general assets to an auditor. This man was a experienced professional, yet it took him a very long time to truly understand the product. I deal with them every day, and have for the past 20 years, so I do understand… but I also learn something new almost daily.
@Jonn… 🙂 Thanks.
Insurance companies are not charities. The laws are intricate, and they know how to maneuver within the system to earn maximum profits. Keep your head on straight when you deal with them, and NEVER let them near your heartstrings…ever.
the fact that the automatic option for lump sum is one that benefits the corporation at the expense of the servicemember’s family is disgusting. the intent is to hope they leave it in the alliance account, otherwise the initial option would be “do you want a check for the full amount or do you want us to hold onto it for you?”
I would be interested to know how easy it is for one to obtain the information that they can withdraw the whole amount and deposit it in their own account, and, are they “accidentally” given information that they cannot transfer the whole amount to their own bank account by poor hourly worker that don’t understand the actual rules.
any interest these companies make on dead servicemembers should be donated to helping living ones, not lining some CEO’s pockets.
J,
What is up with the agitprop?
ny interest these companies make on dead servicemembers should be donated to helping living ones, not lining some CEO’s pockets.
J– where does the money come from then? and do the employees get paid? I mean… seriously? We even got paid for our service… we didn’t do it out of the kindness of our hearts… even tho there were times members might have done it for nothing- but fact is– they didn’t. It’s capitalism. The people who work for insurance companies.. work for insurance companies. IT’S THEIR JOB.
and another thing– the people who make the planes that fly them home get paid. The people who make the body bags get paid. The people who conduct the funeral get paid. The people the prepare for burial get paid.
EVERYfkngONE of them are profiting from the dead servicemember. Even the recipient of the insurance policy. And I bet every damn one of them wishes no more would die, but they still collect that check.
Got mouths to feed. It’s all just part of life.
I believe this is common practice regardless if it’s a service member or civilian. And be careful putting the full amount in any one bank. More banks are going under than insurance companies, it may actually be safer with the insurance company. If someone feels compelled to put the money in a bank, put it in enough different banks that you are within the FDIC insurance levels (<$100,000?) so that the money is protected in the event of a bank failure.
@OldTanker- Good advise; one correction. The current FDIC insurance level is $250,000 per institution. It was increased due to the bank failures in 2008. That limit is good through 12/31/13.. not sure it if will be made permanent at that point.
Thanks AF, I thought it had been increased but couldn’t remember…
Maybe I’m just naive, but why wouldn’t the payout show up in the form of a check from the Treasury Department? This seems to indicate that better information needs to be provided to Soldiers at the mob site. I’ve filled out or updated dozens of DD93s and SGLV 8286’s and associated docs, and I don’t recall ever hearing exactly how the money is distributed on the event of your death.
Plus, WTF is up with the comments to that news article? There are some toxic words in there.
pmm… because the Treasury Department doesn’t run the program; Prudential does, with VA oversight. If the Treasury were to pay it out, the money would first have to go from Pru to the Treas, and then out to the beneficiary. The current payout is $400,000, I believe.
AF,
I get that the insurance companies are trying to make money, boy howdy! The problem is that they collect on the premiums and then when the pay-out comes they give a beneficiary only .05%? While they are reaping 3-4% interest on the money they should have been divested of, right?
And the article did say it could be rolled into a Roth IRA.
“Under a 2008 law, survivors covered by Prudential’s VA policy are allowed one year to put death benefits into a Roth IRA, allowing them to earn investment gains for the rest of their lives tax-free. Prudential never informed Lohman, she says.
‘If They Had Told Me’
“I definitely would have done that if they had told me,” Lohman says.
Even Stephen Wurtz, deputy assistant director for insurance at the VA, who has overseen the insurance program for 25 years, has been kept in the dark by Prudential.”
My TSGLI worked the same way. I simply went to my bank and wrote a check from the Prudential account to my savings account. Over and done with. The literature that came with the checkbook clearly explained what the situation was. In fact, if I remember correctly it referred to the account as a holding account (but don’t hold me to the last part).
No one is suggesting Pru should go out of business. In order for that to even be a suggestion the majority of their business would have to be servicemember based, which I don’t think is the case. Let Pru make money however it (legally) can. But when servicemembers die, give the interest to the families instead of to themselves.
Compared to funeral homes and body bag makers, Pru is doing the least and profiting the most.
This doesn’t need to be a kneejerk issue. If the family can remove the money anyway, it’s possible that Pru won’t earn interest. It’s not like we are suggesting we steal the bread from Pru’s mouth, just that they provide the families of fallen servicemembers a greater courtesy than others by either giving the actual lump sum or pooling the money and give them the 4.5% interest (I think it fair to allow Pru to have 0.5% interest to cover their operating costs).
Defend-
You are correct about the Roth. My comments were related to your suggestion that the money be rolled into an IRA, which is not an option. I should have been more clear- my fault. We usually refer to the tax-deferred IRA as an “IRA”, and the after-tax Roth IRA simply as a “Roth”. They are completely different products. Sorry for the confusion.
‘Death benefit controversy overdone, FBR analysts say;
Making money off funds ultimately due to customers is what insurers do’
This is the disgusting headline I read at Market Watch.com. Here’s the link: http://www.marketwatch.com/story/death-benefit-controversy-overdone-fbr-analysts-2010-07-29
Just go there and check out the article yourself. It’ll make you want to choke the shit out of someone! Shame on you Insurance companies! Adding more misery to the grieving families of dead servicemembers! Truly reprehensible and blatantly irresponsible!
New York’s attorney general launched an investigation Thursday and the Department of Veterans’ Affairs is also starting an investigation, according to Bloomberg News. Check out the regulatory response here: http://www.marketwatch.com/story/pru-metlife-death-benefits-under-scrutiny-2010-07-29