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Burgeoning Scandal? Insurance for the Department of Veterans Affairs and Payments to Deceased Veterans

Get ready to get angry when you read this. How this happens to the family of those who made the ultimate sacrifice for our country. From the St. Pete Times:

Prudential handles life insurance for the Department of Veterans Affairs, sent a letter about  a deceased's $400,000 policy. And something that 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 small print, in a disclaimer Lohman said she didn't notice, Prudential disclosed that what it called its Alliance Account was not guaranteed by the Federal Deposit Insurance Corp.
Lohman, 52, left the money untouched for six months after her son's August 2008 death. As time went on she tried to use one of the "checks" to buy a bed, and the salesman rejected it. That happened again this year when she went to a Target to purchase a camera.

Lohman says she believed 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 sitting in a bank. It was being held in Prudential's general corporate account, earning investment income for the insurer.

More ...

'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. 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 United States, and the industry holds $4.6 trillion in assets, according to the American Council of Life Insurers. '

Insurance companies ? in addition to holding onto the money of survivors, paying them uncompetitive interest rates and giving them misleading guarantees ? may be violating a federal bank law.

http://www.tampabay.com/news/business/banking/insurers-profit-from-delayed-life-insurance-payouts-to-bereaved-families/1111839

Full post as published by A Georgia Lawyer on July 29, 2010 (boomark / email).