Quote:
Originally Posted by Don
Entire post
|
There is nothing exploitative about this whatsoever. The insurance company paid the beneficiaries the same interest rate a bank would have paid. As to the FDIC issue, 99% of all money in the system today is not FDIC insured. Moreover, insurance companies must have sufficient on-hand money, or they lose their insurance license.
Every dollar that is "your money" that is not in your pocket/safe deposit box is presently being used somewhere else, whether it is in your bank, mutual funds, IRA's, whatever. The people that hold "your money" don't do so because they like you---they do it because they are going to make a profit from it. They pay you interest on your money(X), because they have invested your money while it was sitting idle, and made a profit(X+Y). "Your money" is presently being spent by someone to buy a house, purchase inventory, set up a new business venture, etc.
This investment process is the way Prudential is able to take a person's $2,000 worth of insurance payments, and pay the person's beneficiaries $400,000on that person's death. One of the first maxims any financier learns is that idle does nobody any good. Example: One dollar in your shoe box, after one year, is one dollar. One dollar gaining 6% interest, in one year, becomes $1.06. Not a big deal when talking about ten dollars----it is freaking huge when you talk about millions and billions.
The world of finance suffers fools poorly. I find what this insurance company did to be not only good business, but beneficial to the deceased soldier's families as well.
It was good business because Prudential could have simply sent a check to the beneficiaries. The beneficiaries would have either stuck the money in a savings account or spent it. If they put it in a savings account, then some bank somewhere is going to do the exact same thing Prudential did with it; pay the beneficiaries 1% interest while using the beneficiaries' money to make money. Prudential kept that profit(instead of letting some bank do the same thing) and also fulfilled their duty to the beneficiaries by giving them access to these funds whenever they wanted.
It was beneficial to the deceased soldier's families for a number of reasons. One, anybody who has lost a family member knows the heartache that ensues. There are a hell of a lot more important things to worry about than what to do with a large sum of money at this time.
Second, $400,000 is a lot of money, especially to a person who has never received a $400,000 check. If you want to see what happens to money when given to people who don't know what to do with it, check out some histories of people who have won the lottery. All too often, within a short period of time they are as broke as the day they received their check.
What Prudential did was give the families time to mourn. The money was in a safe place, backed by the company's government-mandated cash levels. When the family was ready, they could access the money, in whole or in part.
Personally, I find this article to be more of the free-market despising crap that I have come to expect from NPR(National People's Radio).