Life Insurance Companies and U.S. Soldiers

As U.S. military forces continue to do battle in several countries, a recent report shows that the Missouri and Kansas insurance departments were checking for complaints over a practice whereby life insurance companies were reportedly profiting from the deaths of U.S. soldiers.

Initially revealed by Bloomberg News, the practice reportedly involves life insurers that earn millions in additional profits by holding a portion of the benefits from such policies and paying them out over time.

According to a spokesperson for the Kansas-City-based Veterans of Foreign Wars, "It may be legal, but it's shameful, absolutely shameful.'

Reports say both Prudential and MetLife lead the way in making hundreds of millions of dollars in added profits from thousands of policies, including those covering soldiers killed in Iraq and Afghanistan, according to Bloomberg.

Instead of paying out all the benefits, the insurers reportedly offer to "hold" the money, sometimes in noninsured accounts, for families of grieving service members, Bloomberg reported.

Bloomberg stated that on an average death benefit of $400,000, Prudential was set to earn 4.8 percent in annual interest while paying survivors a mere 1 percent.

Such "retained asset accounts" have been an option for survivors for approximately 20 years, according to insurance experts, but in the case of U.S. soldiers, the practice has been permitted by the Department of Veterans Affairs, which oversees policies that are tied to the Service Members' Group Life Insurance program.

Prudential indicated recently that it was in discussions with the VA to "address the concerns." Company officials defended the program, saying it provided families with a financial adviser and prevented them from being vulnerable to "abusive sales tactics."

U.S. Sen. Kit Bond (R - Mo.), however, wants to see more from insurers.

In a letter to the VA, Bond remarked, "Like Secretary of Defense (Robert) Gates, who said ... that he believed that the families of our fallen heroes got a check for the full amount of their benefit, I too was shocked by this practice. If accurate, this practice should be prohibited immediately."

Bob Hanson, a Kansas Insurance Department spokesman, commented to Bloomberg, "We've been looking at it and gathering information but we've had no complaints so far."

Kansas has adopted model rules on such accounts, he added.

Kansans can report complaints to 1-800-432-2484 or file a complaint at www.ksinsurance.org. In Missouri, consumers can call 1-800-726-7390 or file a complaint on line at www.insurance.mo.gov.