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MetLife, Prudential Profiting in US Soldier Death Benefit Scandal


In a massive, industry-wide scam perpetrated against military families, over a half-dozen insurance companies are being accused of defrauding beneficiaries of fallen servicemen and servicewomen.

Taking a page from Lucy's playbook of tricks, MetLife (MET), which uses the Peanuts gang as spokescharacters, has been effectively pulling the football out from under its customers' feet. Even like when a savvier Charlie Brown demanded Lucy's promises in writing but still got duped when the document ended up not being notarized, the insurance company has been using fine-print tactics to fool its customers. And one thing these customers certainly have in common with the self-determined, yet hapless character is grief -- albeit theirs is the unimaginable grief that comes with losing a loved one to war.

In a massive, industry-wide scandal perpetrated against military families, over a half-dozen insurance companies including MetLife, Prudential (PRU), Genworth Financial Inc (GNW), Guardian Life of America, AXA SA, MONY Life Insurance Co, New York Life Insurance Co, Northwestern Mutual Life Insurance Co, and Unum Group (UNM) have been subpoenaed by New York Attorney General Andrew Cuomo for allegedly defrauding beneficiaries of fallen servicemen and servicewomen. Initially uncovered in a Bloomberg Markets Magazine article, the scam involves insurance companies retaining death benefits in their corporate accounts and using them to speculate in potentially risky financial markets. The companies then shortchange survivors by paying out a fraction of the interest earned. The Department of Veterans Affairs has also launched an investigation.

In one of the most egregious examples of corporations capitalizing on personal tragedy, insurers have been turning the loss of our country's most honorable into their gain. When a soldier dies, the beneficiary of their life insurance policy receives a sympathy-tinged letter in the mail from the insurance company assuring the $400,000 benefit is being held for safekeeping in a secure, interest-bearing account. But if they happen to overlook the two-point font disclaimer at the bottom, the beneficiaries won't realize that these accounts aren't in a bank and aren't FDIC-insured.

Instead, the payouts, a collective $28 billion at 130 different life insurance companies, are kept in "retained-asset accounts" where the money is gambled in the market, invested in corporate bonds, and lent out at a higher interest rate. MetLife alone earns $100-$300 million a year in profit off its death-benefit accounts. According to the attorney general's office, insurers make up to 4.8% interest off these holdings while paying yields as low as .5% to policyholders -- which is less than half of the rate available at some banks with accounts insured by the FDIC up to $250,000. A class-action lawsuit filed in Massachusetts against Prudential alleges the insurance company kept more than $100 million, earning 5.7% interest on veterans' life insurance policies while paying out only 1%. If this practice seems convoluted to you, imagine how easily it would escape a grief-stricken widow or parent.

Adding to the illusion that the money is in a bank account, survivors are given "checkbooks" that are promised to allow them full access to the benefit whenever needed. But in the case of Cindy Lohman, a Massachusetts mother who lost her 24-year-old son in Afghanistan, her Prudential Alliance account not only lacked the full $400,000, its balance wasn't high enough to afford a camera at Target (TGT).

Democratic Congresswoman Linda Sánchez of California, a member of the House Ways and Means Committee, was shocked to learn of these insurance company practices and has pledged to use her position on the committee to put an end to them. "Had it been known, proactive steps would have been take to try to stop it. The fact that it's coming to light will spur action. And nobody is more committed to doing that than I am."

Meanwhile, in a written statement, Prudential claimed it "does not in any way take money from beneficiaries" and that its accounts "are protected by state guaranty funds that provide protection of at least $250,000 in most states." John Calagna, VP of MetLife public relations, also responded to the charges saying, "We strongly disagree with many misleading statements in recent media reports and want to be clear regarding several important features of MetLife's Total Control Account (TCA)."

US casualties in Afghanistan are soaring to record highs. With a death toll of 66, July marked the deadliest month since the war began. While each casualty should be considered a national tragedy, until these insurance practices end, to the industry, they'll remain a colossal payday.
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