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August 03, 2010 at 08:00 PM
Ooh, those evil insurance companies are at it again! Or so some in the mainstream media would have consumers believe. And surprise – a couple of politicians were quick with the knee-jerk reactions to condemn the insurance companies, too.
Upon closer inspection, this seems to be much ado about nothing.
Last week some life insurance companies – apparently still with big targets painted on their chests – came under fire when Bloomberg Markets magazine posted an article on July 28 titled, “Fallen Soldiers’ Families Denied Cash As Insurers Profit.”
The article, which gained additional traction when it was picked up by NPR and The New York Times, took life insurers to task for perceived injustices in a longstanding common and legal method of paying group life insurance death benefits – retained asset accounts. With Prudential’s Alliance Account, which is mentioned in the article, the insurer opens an interest-bearing account with a checkbook in the beneficiary’s name the next business day.
The article quotes Jeffrey Stempel, an insurance law professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, saying, “the checkbook system cheats the families of the deceased. It’s institutionalized bad faith. In my view, this is a scheme to defraud by inducing the policyholder’s beneficiary to let the life insurance company retain assets they’re not entitled to. It’s turning death claims into a profit center.”
The article goes on to say, “Since 1999, the Veterans Affairs Department has allowed Prudential to send survivors checkbooks tied to its Alliance Account. Prudential’s policies promise either a lump sum payout or 36 monthly payments. About 90 percent of survivors choose to receive the full amount upfront. When they do, they don’t get a check; they get a checkbook.”
