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November 18, 2005 at 07:00 PM
The U.S. Government Accountability Office has published a report that is drawing fresh attention to complaints about abusive sales of financial services products to military personnel.[@@]
The GAO officials found that many young service members who have just begun their service or who have just completed basic training are buying expensive, outdated products, and that some of those service members believe the Pentagon or their branch of the military has endorsed the products.
Many of the products, including life insurance policies, securities and life products marketed as securities, come with high initial fees, officials write in their report.
The product designs are supposed to encourage service members to keep the products for many years, but, in reality, the service members hold only about 10% to 40% of the products for the full term, GAO officials estimate.
Many of the insurance products sold include an “automatic premium payment” system. Under that system, the issuer starts using any built-up policy value to extend coverage automatically if the holder stops making payments, officials write.
The automatic payment system often uses up any savings that product purchasers have managed to accumulate, officials write.
The Senate Banking, Housing and Urban Affairs Committee reviewed the report Thursday.
“The need for definitive action to protect service members appears to be overdue,” Richard Hillman, a GAO managing director, told senators at the hearing.
