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Investingation into Claims of Veteran's Survivors Being Mislead by Insurance Companies
In another potential insurance industry scandal, The U.S. Veterans Affairs Dept. and the National Association of Insurance Commissioners are reviewing military life insurance arrangements.
Why? Apparently large life insurance companies may be profiting from billions of dollars they hold on behalf of the families of fallen military service members.
The controversy is revealed in the Sept. issue of Bloomberg Markets, in which editor David Evans scrutinizes the practices of Prudential Financial -- generating criticism from Cabinet members, reform proposals from U.S. lawmakers, and a fraud investigation by the New York Attorney General.
According to the article, millions of bereaved Americans have been mislead by their insurance companies, who issue “checkbooks” to survivors, instead of paying them lump sums.
Under the microscope are “retained-asset accounts,” which allegedly many insurance carriers use to earn income on $28 billion owed to beneficiaries. Insurance companies are apparently recommending -- as an alternative to a lump-sum payment of death benefits -- that beneficiaries leave policy proceeds in these accounts. Carriers then invest the money, garnering a much higher return than they provide beneficiaries. The biggest problem? According to Bloomberg Markets, families are mislead about the safety of the money, which is often not invested in federally insured banks.
"It's disgraceful on the part of insurance companies," Senator John McCain (R-Ariz.), said in an interview on Bloomberg Television. "We'll obviously have to be looking into it."
Critics say that the insurance companies are benefiting from the misfortune of others. "It's outrageous that they're profiting off other people's grief," says Mark Umbrell in Doylestown, Pa. His 26-year-old son, Colby, an Army Airborne, was killed in Iraq in May 2007. Umbrell was among those who got a "checkbook" account. "I think we're being taken," he says.
The good news? A growing number of lawmakers are calling for an overhaul of such practices. In the meantime -- despite the insurance company's claims that they provide disclosures to the beneficiaries about the nature of these accounts -- a potential class action lawsuit against the insurers based on these allegedly deceptive practices is brewing. Questions? Contact Casey Gerry at (619) 238-1811..