Fallen Soldiers' Families Denied Cash as Insurers Profit

[SouthernDZ]

Incredible - making a bit more on the last full measure of devotion.

http://www.bloomberg.com/news/2010-0...st-profit.html

[Green Light]

That's some low life tactics. DoD needs to clean this up - they're using grief for profit.

[Dad]

Prudential has been pulling crap for a longggggg time. Remember the fine for churning 25 or so years ago? Lawyer I know represented a widow, a retired school teacher who pretty much had everything her husband had left her with stolen by Pru. She was back teaching. The lady came real close to suicide.

[Richard]

Yep - I heard this on NPR yesterday.

SIEGEL: In the case of servicemen and women and their accounts, what does the VA say about this, David?

EVANS: Well, the VA told me that they've starting looking at the way they handle these accounts. It was kind of an odd position that I was in as a journalist to be explaining to the career civil servant at the VA how the program that he administers actually operates. He told me that he thought the people at Prudential were really good guys and that they don't make any money from the Alliance account. I had to explain to him that they did. And I was explaining to him that they make the difference between the half percent that are paid out to folks like Cindy and the 4 or 5 percent that they're making in their investment account.

SIEGEL: But he did understand that the money remained with Prudential until the survivor made some affirmative step to claim it and get it away from them.

EVANS: He did not understand that until I explained it to him.

SIEGEL: He did not understand that.

EVANS: No.

SIEGEL: And did he understand that the money was not insured by the FDIC when it — well, wherever it was at that point?

EVANS: He was somewhat confused.

SIEGEL: And he administered this program?

EVANS: Yes.

http://www.npr.org/templates/story/s...ryId=128825065

Our tax dollars at work...but for whom.

Richard's $.02

[Pete]

My M-I-L, an elderly lady, understands interest real well. That's the first question she ever asks. She's one of those "cash" people and likes to see where her money is.

She's hit just about every bank in town. She gets a little bit better interest rate at another bank and she'll close her accounts and move the money at the drop of a hat.

Sure the Insurance Companies were making a tidy profit in the deal but shouldn't the people been asking "Thats a lot of money. What am I making off it and could I get a better deal somewhere else?"

And the first time I tried to use a check and they wouldn't take it? The money would have been moved the next day.

[Buffalobob]

For those of you who do not understand how Insurance companies are regulated and by who let me help grab a good hold onto the turnip truck rails.

Each state has an insurance regulatory agency that approves what companies can sell insurance and the rates the insurance companies can charge. The regulatory agencies establish the rules for the insurance companies and or the requirements to carry insurance such as automobile insurance. Each insurance company pays money into a pot in that state based upon how much business they conduct in that state. The money in the pot is used to pay the salaries of the staff of the regulatory agencies. Thus in the end the regulatory agency staff are actually paid by the insurance company.

So when you wonder why the insurance company can act like crooks and nobody ever does anything you will understand that it is the fox in the henhouse.

[SouthernDZ]

Originally Posted by Buffalobob

So when you wonder why the insurance company can act like crooks and nobody ever does anything you will understand that it is the fox in the henhouse.

The USDA has the same system which makes me wonder about food inspection standards.

Don't even get me started on the AMA......

[Rumblyguts]

What I'm picking up here is the sense from the insurance companies that "it's accepted practice in the industry, therefore it's OK." That's the same argument my kids will be using on me in a couple years when they want to wear make-up.

In my naieve understanding of law, it looks like these agencies are implying that they are acting in a feduciary capacity. Can fedcuciary capacity be implied, or is it something that needs to be expressly consented to? In any case, the companies are definitly not acting in the best interest of the survivors.

[Razor]

So if I'm understanding this, beneficiaries of SM death benefits are, instead of taking receipt of their insurance payout right away and making their own deposit/investment decisions, allowing the insurance companies to "hold" the funds without asking what interest the account will draw and then are getting angry that they're not getting more of interest the funds are earning?

[craigepo]

Did I mis-read the article? From my reading, the insurance company sent the beneficiaries the ability to pull the money out of the account at any time, and allowed the beneficiaries all the time they needed to decide what to do with the money. While the money sat in Prudential's account, Prudential paid the beneficiaries 1% interest, and made about 4.5% interest on the money.

Presently, the interest on savings accounts is approximately 1-1.5%, depending on which bank you use. Your bank plays with/invests your money, which is one of the ways a bank makes a profit(aka stays in business), which allows the bank to pay you interest as well(bank makes 4.5%, they pay you 1%, they keep the rest. That's banking).

What did I miss?

[Don]

Originally Posted by craigepo

What did I miss?

You missed the difference between, "Here is your money...where do you want me to deposit the funds?" and "We put the funds in one of our own accounts". One is your choice, the other the decision is made for you, albeit as temporary as you want to make it. Additionally, the insurer is exploiting the situation and profiting off their decision with the beneficiaries money i.e. “To help you through what can be a very difficult, emotional and confusing time, we created a settlement option, the Total Control Account Money Market Option. It is guaranteed by MetLife.” Makes it seem like it is a good long term solution. Hell, it's a total control money market account!


Add to that (no matter how short the time period) the money was not insured by FDIC, how well were the beneficiaries protected by the insurers decision to retain the funds? I have heard of some big name insurance groups going under recently.

[tonyz]

Originally Posted by NORMAL550GIRL

And it's the same for lawyers....our state bar dues go toward the Attorney Discipline Board. Which I suppose explains the existence of a lot of really incompetent attorneys I've met.

What I don't get regarding this insurance scheme is how they've crossed over into banking without the regulatory oversight of a bank. I remember vaguely during the few times I was awake during Banking Law in law school that this was supposed to be a no-no. But as I took the class mostly because it fit into my schedule and I was promised there would be no math, I'm sure there's a loophole I don't remember.

Any investment bankers or lawyers etc could shed some light on this?

The fox guarding the hen house is alive and well in other areas of government as well - take the Office of the Comptroller of the Currency.

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks.

The OCC does not receive any appropriations from Congress. Instead, its operations are funded primarily by assessments on national banks. National banks pay for their examinations, and they pay for the OCC's processing of their corporate applications.

As for the banks and insurers working together - google The Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999.

Historically, banks, insurers and securities firms acting in concert as one company were referred to as a financial services company - think Citigroup.

[craigepo]

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).

[Green Light]

Originally Posted by Don

You missed the difference between, "Here is your money...where do you want me to deposit the funds?" and "We put the funds in one of our own accounts". One is your choice, the other the decision is made for you, albeit as temporary as you want to make it. Additionally, the insurer is exploiting the situation and profiting off their decision with the beneficiaries money i.e. “To help you through what can be a very difficult, emotional and confusing time, we created a settlement option, the Total Control Account Money Market Option. It is guaranteed by MetLife.” Makes it seem like it is a good long term solution. Hell, it's a total control money market account!


Add to that (no matter how short the time period) the money was not insured by FDIC, how well were the beneficiaries protected by the insurers decision to retain the funds? I have heard of some big name insurance groups going under recently.

I think you summed it up nicely.

[Don]

Originally Posted by craigepo

There is nothing exploitative about this whatsoever.

I would agree if we change a little verbiage in the notification letter to the following to read, "To help you through what can be a very difficult, emotional and confusing time, please provide your financial institution account and routing number so we can take care to ensure the funds are transferred to your account."

Their explanation was a pitch line for keeping the money within the Metlife company for a period of time...possibly for a long period of time. Again, it is about choice. When I believe that when someone uses an "emergency" or highly distressing event to make a decision on your behalf, under the guise of making things easier for you...I think that's exploitative.

Originally Posted by craigepo

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.

Originally Posted by craigepo

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.

I prefer to give more credit to peoples ability to understand how to take care of their money. I don't think the majority of these people, upon receiving $400,000, are going to blow the money.