Damn Insurance Companies

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Damn Insurance Companies

Postby Nicole Marie » Thu Jul 29, 2010 8:54 am

My Air Force husband and I saw this article the other day... We were not very happy about this given that John is an AF Combat Medic (CSAR) and deploys all the time. We were pretty ticked. I wanted to present this to you guys. I know the Board is full of smart and interesting people. I look forward to your response!

Veterans Agency to Probe Insurer Handling Soldiers’ Benefits
July 29, 2010, 12:03 AM EDT

July 29 (Bloomberg) -- The U.S. Department of Veterans Affairs is investigating life insurance companies’ practice of putting veterans’ death benefits in corporate accounts and keeping most of the investment profits instead of paying the survivors.

“The possibility that life insurance companies are profiting inappropriately from these service members’ sacrifice is completely unacceptable,” Mike Walcoff, acting undersecretary for the agency’s Veterans Benefit Administration, said yesterday in a statement that announced the investigation.

Bloomberg Markets magazine reported what has become a standard practice for life insurance policies issued by companies including Prudential Financial Inc. and MetLife Inc.

Instead of paying a lump sum to survivors when a policyholder dies, insurers keep the money in their own accounts, pay uncompetitive interest rates to survivors and give them misleading guarantees about the safety of the funds.

Prudential, the second-largest life insurer, handles life insurance policies for U.S. military personnel and veterans. New York-based MetLife, the largest life insurer in the U.S., provides insurance for nonmilitary federal employees.

“The purpose of these benefits is to assist grieving survivors -- not to improve insurance company profits,” said Daniel Akaka, chairman of the Senate Committee on Veterans Affairs and a Hawaii Democrat.

‘Outraged’

House Veterans Affairs Committee Chairman Bob Filner said he was “outraged” that insurance practices appear to result in “corporations retaining the assets in corporate accounts, profiting from the interest, and failing to pass accrued interest to surviving families.” The California Democrat said VA officials should “demand answers” about the program.

The White House “supports the VA’s immediate investigation into these unacceptable insurance companies’ practices,” spokesman Nick Shapiro said in a statement yesterday. President Barack Obama “is committed to fulfilling America’s responsibility to our armed forces and their families,” Shapiro said.

Survivors are told the 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.

In fact, insurers place the so-called retained-asset accounts in their own general corporate accounts and keep most of the investment earnings. The money isn’t guaranteed by the Federal Deposit Insurance Corp., and the “checks” are IOUs for money in the insurer’s account.

‘Holding Back’

“It’s disgusting, particularly in the case of dead soldiers, for insurance companies to be holding back” money from survivors, Robert Hunter, Director of Insurance for the Consumer Federation of America, said in a telephone interview.

State insurance commissioners “should outlaw this practice. They have the power to do it -- they can say this is an unfair trade practice,” said Hunter, a former Texas insurance commissioner.

The New York State Insurance Department will review the legality of the practice, Deputy Superintendent Matthew Gaul said yesterday. Pentagon spokesman Geoff Morrell said yesterday he had no comment.

The American Council of Life Insurers released a statement saying retained-asset accounts help survivors.

‘Significant Benefit’

“Retained-asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one,” the council said. “Financial matters may not be the first thing on their minds and retained-asset accounts provide a secure place for life insurance policy proceeds to be held until the money is needed.”

Insurers are holding onto at least $28 billion owed to survivors, according to three firms that handle the retained- asset accounts for about 130 life insurance companies.

House Armed Services Committee Chairman Ike Skelton, a Missouri Democrat, said U.S. troops’ survivors must be provided more information about how to handle death benefits. He said insurance companies should be examined to “make sure they aren’t misrepresenting the options being offered to surviving family members.”

Skelton said his committee will “assist in finding a remedy for this problem.”

Since 1999, the VA has allowed Newark, New Jersey-based Prudential to use this procedure in providing benefits to survivors of fallen soldiers. In 2009, the families of U.S. soldiers and veterans were supposed to be paid death benefits totaling $1 billion immediately, according to their insurance policies. They weren’t.

Interest Rates

In 2008, Prudential paid survivors 1 percent interest on their accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings.

Prudential spokesman Bob DeFillippo said the company’s Alliance Account is lawful and is an aid to soldiers’ families. MetLife spokesman Joseph Madden said customers are happy with the Total Control Account.

“The TCA affords beneficiaries security, peace of mind and time to make an informed decision -- while earning interest in the interim,” Madden said.

Hunter said the VA and Pentagon should provide accurate information on the accounts to military personnel and should “outlaw any insurance company that uses this practice” from using any military facilities to sell the product.

The quasi-banking system operated by insurers has none of the protections of the actual banking system, and the financial regulation overhaul signed by Obama on July 21 didn’t address it.
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Re: Damn Insurance Companies

Postby Shapley » Thu Jul 29, 2010 9:18 am

I'm sure some bean-counter came up with the idea, with no regard for the emotional significance. Legally, the companyies are apparently complying with the terms of the contract, so I can't be outraged. I've commented before that many people profit from death - undertakers, burial-vault manufacturers, marble quarries, headstone manufacturers, even cemeteries in some cases. Death is a business, and so is insurance. The insurance companies provide insurance, not as a public service, but to make a profit. The idea that the profit has to end at death is driven by emotion, not logic.

If the government doesn't want insurance companies profiting from the business, they shouldn't contract with for-profit enterprises to provide the service.

I'm sorry to sound so cold-hearted. From what I understood of the report as I heard it yesterday, the insurance companies are in full compliance with the contracted payouts.

Many policies allow a time-structured payout for death benefits, usually over the course of one to five years. This is beneficial, as the insurance company spokesman says in the article, because it gives the grieving family members time to do some financial planning before being handed a large-sum payout. Sadly, many people, and most young people (of which the military is primarily comprised) do not adequately plan their finances, and many a grieving family has found themselves running through their death benefits all too quickly as a result of poor financial planning.
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Re: Damn Insurance Companies

Postby Selma in Sandy Eggo » Thu Jul 29, 2010 9:43 am

MetLife puts the life insurance benefits into an account that they hold, and send you a pad of checks. They call it an interest bearing account, and pay 2% or less. Beneficiaries can pull the funds out of the account by simply writing a check: this is not that difficult. The insurance money can then be invested however the beneficiary wants.

While I agree that the insurance companies don't pay good interest on the funds that they hold, you don't have to let them keep holding it for you.
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Re: Damn Insurance Companies

Postby Nicole Marie » Thu Jul 29, 2010 10:08 am

Good point Selma. And I think that is where the rub comes in too. I understand that insurance companies are not fully breaking the law but they also do not seem to be fully honest with the practice to policy holders. As I am reading more about this I am finding that many policy holders were not aware of the practice and that they have a right to pull the funds or make request to the insurance company. The money is theirs and the policy holder can move it (pull it out) as they see fit but it sounds like the insurance companies are not 100% forth coming on that information.

By law insurance companies have to follow the law called "duty of disclosure" it seems that they are toeing the line ever so slightly on this topic. And unfortunately, most policy holders are not aware of their rights and that they are actually the one in control and not the insurance company. If anything I hope this educates more policy holders on what their rights are.
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Re: Damn Insurance Companies

Postby Shapley » Thu Jul 29, 2010 10:32 am

A lot of people simply don't read their policies. I'm sure it' is spelled out, but probably not highlighted, printed in large block letters, or otherwise distinguishable from the other dozen or so pages of small print of which comprises the policy.

When the policy is explained verbally, usually at the time of signing, I doubt much detail is paid to such things, and I doubt that the people buying it pay much attention anyhow, since they don't expect to ever have to take advantage of it. "We'll cross that bridge when we get to it" is the usualy attitude to handling the details, most just want to know the amount of insurance, the cost, and the tax consequences.
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Re: Damn Insurance Companies

Postby Selma in Sandy Eggo » Thu Jul 29, 2010 10:59 am

Missing a point, folks. The policy holder is the deceased. All information concerning the policy was disclosed to the deceased when the policy was purchased.

The beneficiary doesn't get all that disclosure stuff until, and unless, the policyholder dies. If then. The beneficiary has no contract with the insurance company, and may not know that they are the beneficiary or that the policy exists. The policyholder should leave paperwork in the custody of family, or a lawyer, or somebody who will act in the event of his/her demise.
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Re: Damn Insurance Companies

Postby Shapley » Thu Jul 29, 2010 11:12 am

That's a valid point. My family has all the paperwork, but they only received an abreviated form of the verbal outline I received, which an abreviated presentation of the overall policy, which I've not read in its entirity. I have probably read more than many policyholders read of theirs.

Then, of course, there are those periodic small-print papers that come in the mail labeled "important changes to your policy". I skim those and file them with the original. I don't believe I've ever offered to read them to the family...
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Re: Damn Insurance Companies

Postby dai bread » Thu Jul 29, 2010 10:55 pm

I was just imagining the reaction of my lawyer if anyone ever tried this on one of her estates. 4th of July would be a damp squib in comparison. She's in Auckland and I'm 2 hours south, and I guarantee I could see the fireworks from here.

What on earth are your estate lawyers doing letting insurance companies get away with what is essentially misappropriation?
We have no money; we must use our brains. -Ernest Rutherford.
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Re: Damn Insurance Companies

Postby Nicole Marie » Fri Jul 30, 2010 10:16 am

Thanks for pointing that out Selma. It is such a shady practice and I hope insurance companies change the way they are dealing with this. We ask the military to go into harms way... the least we can do is to ensure that they are not taken advantage of and families are covered.
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Re: Damn Insurance Companies

Postby analog » Sat Jul 31, 2010 8:09 am

it's stealing plain and simple.

Insuror is a species of genus financier, described ca 1823 by Charles Lamb thus:

The human species, according to the best theory I can form of is composed of two distinct races, the men who borrow, and the men who lend. To these two original diversities may be reduced all those impertinent classifications of Gothic and Celtic tribes, white men, black men, red men. All the dwellers upon earth, "Parthians, and Medes, and Elamites," flock hither, and do naturally fall in with one or other of these primary distinctions. The infinite superiority of the former, which I choose to designate as the great race, is discernible in their figure, port, and a certain instinctive sovereignty. The latter are born degraded. "He shall serve his brethren." There is something in the air of one of this cast, lean and suspicious; contrasting with the open, trusting, generous manners of the other.



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Re: Damn Insurance Companies

Postby Haggis@wk » Mon Aug 02, 2010 2:36 pm

As a retired GI I'm of two minds here. First, I think the payout should be just that, a "payout." But I've also seen 19 y.o. widows spent the entire check in less than a year. While I could make an argument that it's not the insurance companies business to try to educate the beneficiaries on fiscal conservatism I'm reminded by the Philippino widow who gambled her entire payout away in one night then re-contact the beneficiary office and requested another payout. She truly thought that she could receive endless payments.
The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Alexis De Tocqueville 1835
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Re: Damn Insurance Companies

Postby piqaboo » Mon Aug 02, 2010 5:20 pm

Ouch - I can see how that might happen. I hope they were childless.

I wouldnt mind a year to get my feet under me, using the insurance company as a bank.
I'd prefer to get a higher rate of return, but I can see how I'd find it useful to let them hold it, while I sorted out all the myriad other urgencies.

Still, it shouldnt be a secret to the beneficiary. It should be a concious choice: I'm losing money, to save time and hassle right now or I can deal with this now, I'm taking my money to the bank and putting it in a CD for a year.
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Re: Damn Insurance Companies

Postby Shapley » Mon Aug 02, 2010 8:57 pm

piqaboo wrote:Still, it shouldnt be a secret to the beneficiary. It should be a concious choice: I'm losing money, to save time and hassle right now or I can deal with this now, I'm taking my money to the bank and putting it in a CD for a year.


Are you actually 'losing' money, or simply not making much interest. If the insurance company is delivering the guaranteed sum in the allotted timeframe, I can't see that the beneficiary actually 'loses' anything.
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Re: Damn Insurance Companies

Postby piqaboo » Thu Aug 26, 2010 2:07 pm

'Losing' in the sense that if I had the money in a bank acct, I'd be getting 3% instead of 1% interest.
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Re: Damn Insurance Companies

Postby Handsurgeon » Sat Aug 28, 2010 11:29 am

Nicole,

Thank you for John's service and for your sacrifice and tears when he is deployed. As a former USAF Flight Surgeon, I assure you that John, as a CSAR medic, will never buy his own drinks in an officers club on a base where aircrew are stationed. While those remotely-piloted vehicle "Video Game" players may not need him, the rest of us are indebted to him and other rescue personnel beyond repayment.

The issue of insurance proceeds being placed in an account for beneficiaries is an interesting one. At first, I thought that the insurance companies were placing the proceeds in an escrow account when the insurance policy demands an immediate, one time payment of the benefit. Later in the messages, the situation looks different. The insurance companies place the benefit in a demand account controlled by the insurance company, paying the beneficiary only a small portion of the interest they earn on the balance.

While a few beneficiaries may have no place for their safekeeping or immediately waste the funds, the vast majority have the sense (or supporters who do) to not fold up the check in their pocket or cash it at a convenience store. An educational campaign for beneficiaries to withdraw the entire benefit amount from the insurance companies account and place it in a higher interest bearing credit union or bank or brokerage account of their choice would be an appropriate response. I have seen Casualty Notification Teams doing their awful work, but have also seen the services provide support for the surviving family that brings tears to your eyes. I would hope that a discussion of the alternatives for the insurance benefit is included in their support for the families.

Thanks again to you and John.
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