Posted on 02 Aug 2010
Representative Debbie Halvorson (D-IL) introduced legislation that would impose new requirements on life insurance companies that hold onto money from death benefits to families of U.S. soldiers and veterans.
New rules proposed by Halvorson would require companies such as Prudential Financial Inc. to disclose to survivors how the benefits have been invested and to counsel families on the advantages and disadvantages of letting the insurer hold the money instead of investing it elsewhere or putting it in a bank.
Bloomberg Markets magazine reported on July 28 that life insurance companies keep money in their own accounts, instead of paying a lump sum to survivors when a policy holder dies, pay uncompetitive interest rates and offer misleading guarantees about the safety of funds that aren’t federally insured.
“To read stories about big insurance companies profiteering at the expense of the parents or spouse of a fallen soldier is outrageous,” Halvorson said in a statement.
Her bill, introduced July 30, requires the U.S. Department of Veterans Affairs to enforce the new rules and requires the agency to issue an annual report to Congress to make sure insurance companies “are being responsive to military families.”
Prudential, the second-largest U.S. life insurer, is the sole provider of life insurance coverage to 6 million U.S. military personnel and veterans.
Prudential spokesman Bob DeFillippo said the Newark, New Jersey-based company is “working with the VA to address concerns raised about the program.”
While saying it is “premature to comment on this legislation,” DeFillippo said “I must stress that we already provide financial counseling through a third party at no cost to the beneficiaries.”
Halvorson, 52, is the step-mother of an Army Special Forces soldier who was injured in Afghanistan. House Veterans Affairs Committee Chairman Bob Filner, a California Democrat, is co- sponsor of the legislation.
“I have spoken to fellow military parents who have endured the burden of losing a loved one, and the last thing they need is to fight a big life insurance company,” she said.
The Veterans Affairs department is investigating the practice, and Defense Secretary Robert Gates pledged on July 29 that the Pentagon will help the agency complete its probe.
“I will be very interested in the outcome of the VA investigation,” Gates told a Pentagon press briefing.
New York Probe
New York Attorney General Andrew Cuomo on July 29 announced an investigation of the practice, which has allowed more than 100 carriers to retain and earn investment income on $28 billion owed to life insurance beneficiaries. Cuomo’s office has subpoenaed at least eight insurers, including Prudential and New York-based MetLife Inc., the biggest U.S. life insurer. The New York State Insurance Department also plans to review the legality of the practice.
Families are often told that a relative’s death benefit is being placed in a secure, interest-bearing account, and they are given what the company calls a “checkbook” to spend the money when they want, Bloomberg Markets reported.
Insurers place the so-called retained-asset accounts in their own general corporate accounts and they keep the difference between the interest rates they pay out and their investment income from bonds and other investments. The money in these accounts isn’t guaranteed by the Federal Deposit Insurance Corp., and the “checks” amount to IOUs from the companies.