Insurers Eyed in Death Benefit Profiteering

Insurance companies that have been profiting from the policies of dead U.S. troops are being investigated by the Department of Veterans Affairs and taking heat from the White House and outraged congressional leaders.

The moves come after a Bloomberg News investigation into the practices of some of America's largest life insurers revealed companies were not paying death benefits in full to survivors but were setting up special corporate accounts that permitted the insurers to earn interest on the benefit money.

Mike Walcoff, acting undersecretary for the veterans department's Veterans Benefits Administration, yesterday called the practice "completely unacceptable" and said the agency would be investigating the claims.

Political leaders also are weighing in on the practice. In an e-mailed statement, an administration official said the White House supports the investigation, "as the President is committed to fulfilling America's responsibility to our armed forces and their families who have served and sacrificed on our nation's behalf."

Rep. Bob Filner, D-Calif., chairman of the House Veterans Affairs Committee, provided a more stinging response to the allegations.

"I am outraged that companies managing the life insurance portfolios for America's veterans place death benefits in interest-bearing accounts that yield far higher returns for the insurance company than the surviving family," he said in a statement. "Rather than giving families unrestricted access to death benefits, it seems industry practices result more often in corporations retaining the assets in corporate accounts, profiting from the interest, and failing to pass accrued interest to surviving families."

But Filner also slammed the Department of Veterans Affairs for not knowing what has been going on for at least a decade.

"The VA employees entrusted with oversight of insurance programs for survivors too often failed to explain all the options available for these families in their time of need," he said. "I am grateful for the hard work of news reporters and wish a few more VA employees would ask the tough questions, demand answers, and advocate for the families of the fallen."

According to the Bloomberg report published July 29, companies -- including Met Life and Prudential -- have not been paying benefit moneys in a lump sum to survivors of troops killed. Instead, they put the money -- $400,000 in a case cited by Bloomberg -- into an interest-bearing account and send the family member what appears to be a checkbook to draw on the account. It's actually a "draft" book, and families soon find that the drafts are not accepted in many places because, unlike checks, they cannot be immediately converted into cash.

The report says the insurer will inform the family member that the account will draw up about 0.5 percent interest, but does not say that the insurer will also draw interest in the account -- up to 4 percent, according to Bloomberg reporter David Evans, who spent six months developing his story. Speaking for a Bloomberg.com broadcast interview, Evans said that many families are still in grief when they receive the death benefit, and it does not occur to them to question the account or the drafts.

And many do not realize they can take the money, put it into a money-market account in a federally insured bank and earn more interest, he said.

In the interview, Evans said MetLife developed the system in 1984. Since then, more than 100 insurers have adopted the practice, turning into what he called "a shadow banking system" that now totals about $28 billion.

Sen. Daniel Akaka, D-Hawaii, chairman of the Senate Veterans Affairs Committee, said he wants the VA "to consider what additional protections should be put in place for survivors as they grieve" to make sure they are not taken advantage of by the insurers.

"When a servicemember's life is lost in the defense of our country, we have an obligation to provide the family they left behind with the benefits to which they are entitled," he said. "Clearly, the purpose of these benefits is to assist grieving survivors, not to improve insurance company profits."