Insurance Companies Profit From Fallen Soldiers


For the families of fallen soldiers, funds from their loved ones’ life insurance policies may provide little comfort for their loss, but it just adds insult to injury to learn that insurance companies have set the system up so they make a profit by holding onto payouts, using the funds to make more money, and pocketing most of the earnings.

According to an excellent investigation published by Bloomberg yesterday, that’s exactly what happens with “retained-asset accounts,” which have become “standard operating procedure” in the life insurance industry.

With these “retained-asset accounts,” instead of writing a check for a lump sum, insurers send beneficiaries something that resembles a checkbook and assures them that the money is in a secure, interest-earning account.

In reality, according to Bloomberg, the insurer holds onto the funds and uses them to earn investment income. Prudential, for instance, earned a 4.8 percent return on such funds in 2008, while paying beneficiaries far less interest. Here’s Bloomberg:

Both MetLife, which handles insurance for nonmilitary federal employees, and Prudential paid 0.5 percent interest in July to survivors of government workers and soldiers. That’s less than half of the rate available at some banks with accounts insured by the FDIC up to $250,000.

What’s more, the “checks” aren’t always accepted because the process for retailers to receive reimbursement is more complicated—the money isn’t pulled directly from a bank account because it needs to first be transferred from the insurer.

Though some states are looking into the matter, few states have rules on retained-asset accounts, and the Office of Veterans Affairs—which pays Prudential for life insurance for soldiers—has allowed the practice, according to Bloomberg.

Charles H. Green
8/7/2010 4:08:47 PM

You might want to hedge your characterization of this story as an "excellent investigation." On closer inspection, it looks very flawed, and the news organizations and politicians who are uncritically passing it along are in danger of pulling another Shirley Sherrod. Look, for example, at the Wall Street Journal's take on the story--basically that it's been explored in courts ten times, and judges have pretty much said there's no issue here; at Look at an online discussion of actuaries, who are pretty articulate about the lack of an issue here, at Or read my own blogpost on it at . Just because it's a name-brand news organization doesn't mean they got their reporting right; in fact, we depend on places like UTNE to get it right, not to blindly accept it.

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