Fallen Soldiers' Families Denied Cash as Insurers Profit
By David Evans
July 28, 2010
The package arrived at Cindy Lohman's home in Great
Mills, Maryland, just two weeks after she learned that
her son, Ryan, a 24-year-old Army sergeant, had been
killed by a bomb in Afghanistan. It was a thick, 9-
inch-by- 12-inch envelope from Prudential Financial
Inc., which handles life insurance for the Department
of Veterans Affairs.
Inside was a letter from Prudential about Ryan's
$400,000 policy. And there was something else, which
looked like a checkbook. The letter told Lohman that
the full amount of her payout would be placed in a
convenient interest-bearing account, allowing her time
to decide how to use the benefit.
"You can hold the money in the account for safekeeping
for as long as you like," the letter said. In tiny
print, in a disclaimer that Lohman says she didn't
notice, Prudential disclosed that what it called its
Alliance Account was not guaranteed by the Federal
Deposit Insurance Corp., Bloomberg Markets magazine
reports in its September issue.
Lohman, 52, left the money untouched for six months
after her son's August 2008 death.
"It's like you're paying me off because my child was
killed," she says. "It was a consolation prize that I
As time went on, she says, she tried to use one of the
"checks" to buy a bed, and the salesman rejected it.
That happened again this year, she says, when she went
to a Target store to purchase a camera on Armed Forces
Day, May 15.
Lohman, a public health nurse who helps special-needs
children, says she had always believed that her son's
life insurance funds were in a bank insured by the
FDIC. That money -- like $28 billion in 1 million
death-benefit accounts managed by insurers -- wasn't
actually sitting in a bank.
It was being held in Prudential's general corporate
account, earning investment income for the insurer.
Prudential paid survivors like Lohman 1 percent
interest in 2008 on their Alliance Accounts, while it
earned a 4.8 percent return on its corporate funds,
according to regulatory filings.
"I'm shocked," says Lohman, breaking into tears as she
learns how the Alliance Account works. "It's a
betrayal. It saddens me as an American that a company
would stoop so low as to make a profit on the death of
a soldier. Is there anything lower than that?"
Millions of bereaved Americans have unwittingly been
placed in the same position by their insurance
companies. The practice of issuing what they call
"checkbooks" to survivors, instead of paying them lump
sums, extends well beyond the military.
In the past decade, these so-called retained-asset
accounts have become standard operating procedure in an
industry that touches virtually every American: There
are more than 300 million active life insurance
policies in the U.S., and the industry holds $4.6
trillion in assets, according to the American Council
of Life Insurers.
Insurance companies tell survivors that their money is
put in a secure account. Neither Prudential nor MetLife
Inc., the largest life insurer in the U.S., segregates
death benefits into a separate fund.
Newark, New Jersey-based Prudential, the second-largest
life insurer, holds payouts in its own general account,
according to regulatory filings.
New York-based MetLife has told survivors in a standard
letter: "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."
No FDIC Insurance
The company's letter omits that the money is in
MetLife's corporate investment account, isn't in a bank
and has no FDIC insurance.
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