Life insurance companies are duping millions of Americans by holding onto death benefits that should be dispersed to families. An investigation by Bloomberg Markets magazine found that MetLife and Prudential have led the way in secretly making enormous amounts of profits on money owed to the relatives of people who have passed away.
Chief among the victims in this ploy are the families of U.S. soldiers killed in combat. Service men and women’s surviving family are told they will receive a life insurance payout of $400,000 in the event of a death but instead Prudential ends up holding on to the money. Families then receive what looks like a checkbook and a promise from the insurance company to keep the money safe for them and pay .5 % interest.
What they don’t know about this “safekeeping”, though, is that the money is kept in Prudential’s own corporate investment account, earning the company up to 10 times as much in interest as the family does. The checks themselves-with JPMorgan-Chase logos printed on them- do not actually function as checks; instead they must be submitted to Prudential to take any money out. To top it all off the funds are not protected by FDIC insurance, as they’re not actually being held in a bank.
This practice is not just limited to the military, though, and seems to have become commonplace in the last ten years. MetLife alone holds more than $10 billion in death benefits, translating into almost $300 million a year in investment profit. Nationally, figures show that there are more than a million of these accounts at 130 different life insurance companies. By simply issuing these “checkbooks” instead of paying out lump sums to surviving families, companies are raking in cash hand over fist.
There are only six states that have any rules regarding these accounts according to the National Association of Insurance Commissioners. These states (Arkansas, Nevada, North Carolina, North Dakota, Colorado and Kansas) all require life insurance companies to disclose interest rates and fees and to inform survivors that they can withdraw all of their money in one lump sum by writing a single check. In Pennsylvania, Insurance Commissioner Joel Ario is attempting to protect families from these practices and has prepared a regulation that will not allow companies to use the checkbook accounts as the default payment method to survivors.
Unfortunately this is an issue that seems to have flown under the radar and, until public officials take notice, mourning families will continue to be a significant cash source for the life insurance industry.
