Insurance Industry's Dirty Little Secret

(CBS)  The death of an American in uniform - no matter what the circumstances - is always a tragedy. Now, the Department of Veterans Affairs and the State of New York are investigating whether life insurance companies are taking advantage of their grieving families at a time when they're most vulnerable.

This is in response to a story we brought you last night, based on a six-month investigation by Bloomberg Markets Magazine.

It's being called the life insurance industry's dirty little secret: revelations the nation's second largest insurer was profiting from the death benefits of fallen soldiers.

"Until today I actually believed that the families of our fallen heroes got a check for the full amount," said Secretary of Defense Robert Gates on Thursday. "So this came as news to me."

CBS Evening News Anchor Katie Couric reports survivors like Cindy Lohman, whose son Ryan was killed in Afghanistan, believed they'd be getting checks too.

Instead, they were told their death benefits were being placed in a secure, interest-bearing account. But the funds are actually held in the company's own general corporate account, allowing Prudential to earn the lion's share of the interest for itself.

"I was stunned to find out that 'yeah, I had been duped.'" Cindy said.

In 2008, when Cindy Lohman's statement said she was earning less than 1 percent interest on her Alliance Account, public records show Prudential was earning almost 5 percent on its corporate account.

Read the Bloomberg Markets Magazine Report
A Fallen Hero: How an Insurance Company Profited

"When I read about it and saw how despicable it was I frankly thought it was treasonous," said Rep. Patrick Murphy, D-Pa.

Rep. Murphy is an Iraq War veteran himself, and says he's looking into possible legislation to end the practice of so-called "retained asset accounts" permanently.

"I am not sure if it is criminal or not, but what I know is it's wrong and it should stop," Murphy said. "And if they don't stop it themselves, we are going to stop it for them."

But the practice extends well beyond the military. New York-based MetLife Inc., the country's largest life insurer, is one of over 120 insurance firms holding some $28 billion in retained-asset accounts.

Today, New York state Attorney General Andrew Cuomo launched his own consumer fraud investigation, serving subpoenas to MetLife and seven more life insurance providers.

David Evans, the writer of the Bloomberg Markets Magazine investigation said his inbox was flooded with e-mails today, from policy holders saying they're reeling from a broken trust.

"They sound like they feel betrayed that they didn't have more information about how these policies worked and they had to learn about it by reading a magazine article," Evans said.

In a statement yesterday to CBS News, Prudential said, "We fully disclose the nature and terms of the account to accountholders, including the interest credited to their account."

Late today, Prudential told us it's in talks now with the Department of Veterans Affairs to address the concerns that have been raised.

[lllyadams790]

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[ontouringb]

I am a military widow and I took the lump sum payment of insurance money from Prudential, deposited in my bank to invest as I wanted. It is my understanding that all insurance recipients have this option.

The real travesty of justice here was missed. Prudential insures the survivor's retirement pay to the widow. The service person pays Prudential for this insurance. Since my husband died 100% service connected I am ALSO entitled to compensation pay from the Veteran?s Administration called DIC. So in theory I should receive my husband's retirement pay which he served 26 years to earn, AND the DIC death benefit from the VA. Prudential went to congress in the 1980's and claimed that a widow would be "double dipping" if she received both her husband's retirement pay and the death compensation called DIC. Congress agreed, and widows no longer are able to collect both. We collect the DIC from the VA, but Prudential gets away without paying the retirement pay to the widow.

Each year this unfair deduction in widow?s benefits is introduced into the Defense Bill by the House. And each year it is one of the first things that the Senate negotiates out of the bill. If you add up all the widows from World War II, Korean, Vietnam, and now Iraq an Afghanistan this represents a huge profit for Prudential. THAT IS THE REAL STORY ON INSURANCE FRAUD HERE.

[ontouringb]

I wrote the above comment and when I uploaded it two question marks were added. Veteran?s and widow?s should read, Veteran's and widow's. Please note.

[RH90]

I think this scam is unbelieveable and can't understand why a person or corporation would do this to men and woman that give us everything we're SUPPOSE to stand for. But I feel like this black cloud shouldn't be placed over all "insurance companies." This is the work or a few dirty people in a dirty company which puts a stain on all life insurance companies which is unfair. I myself USED to work at a large life insurance company and think they are one of the most trustworthy and secure company in their class, if not in the U.S.
So yes, be upset and angry, but don't put the good guys in the industry in the same category as these scum bags.

[dddelapp]

It's amazing the half truths and innuendos in this story. The fact is the family gets the money and Prudential paid it.

Its done for a variety of reasons, often because clients wat IMMEDIATE access to the money to pay bills etc.

As far as children named as beneficiaries, adding the word in trust to a will does nothing. The Beneficiary arrangement ALWAYS takes precedence over the will. That's why it is not taxed. People need a RELIABLE agent to help them, understand their policy!!!!!!!!!!!!

[lindabrabant]

This is typical of big government not telling the common soldier what is going on with the life insurance policy. Even veterans affairs did not know about. Try telling the funeral home you do not have the money and your check is going to bounce.

[jdub4110]

This is a terrible story. Prudential and other insurance companies do this for all group plans, not just the military. The beneficiary can take that secure account and write a check to their personal bank account or cash it with any legimitate financial instuition for the full amount of the death benefit at any time. In my opinion, this is a very misleading story at the mininum but I think it's slander.

You do not site any beneficary was not able to receive the full amount of the funds in this story when they went to the bank or a legitimate financial institution to cash the check from the Prudential account. I hope they sue you and put you out of business for your "dirty little journalist" story that is obviously written by another journalist that is anti-business. You are making the insurance company look like they are holding the beneficiaries of the honarable fallen soldiers hostage to a bank account that they can't cash the check for the full amount at any time....you should absoletely be ashamed of yourself.

[MsNoose]

Thanks for telling the American public about this terrible practice. How shameful to make a profit from insurance paid when soldiers die for their freedom to be able to practice business in a free society. I wrote to their Board of Directors and told them : "FOR SHAME PRUDENTIAL"

[bngthr]

The same Insurance Company practices go on in the Workers Compensation system. Here in California, there were cries by business that something had to be done about the "out of control" system. Arnold with his unknowing legislation gave a big kiss to the Insurance Industry, of course the only people who really suffered were the seriously injured. California now ranks as the 4th lowest in payouts to the injured, in one of the most expensive places to live in the country. People who are working honest jobs, really don't know what the payouts are for becoming seriously injured. The compensation is within poverty limits. Of course the Insurance Industry reportedly has made 80 billion dollars since 2005 in CA alone, this is not counting the money they've made in the Wall Street casino. They blame the injured worker, so they can make even more money. I was told by an Insurance company rep. that this is "just business as usual," it all works in their favor, and they(insurance)are making billions and trillions of dollars off the suffering in this country. Then the suffering injured workers are treated like criminals, just for getting hurt on the job, and they(insurance companies)don't give a damn! This should be a crime!

[grfletch]

It's not only the beneficiaries of military life insurance policies that the insurance industry is hosing - it's the families of employer provided term life. When my husband died 15 years ago, he had a term policy that was split between me and the children - both minors. We had a valid will but because we did not include the word "trustee" in his current will, the children's portion was held in trust by the insurance companies until they were 18 then they got minimal interest. Fortunately, they were teen agers so they only held the money for a few years. When I talked to his employer's benefits people they said this happens all the time and is especially financially devestating for families of very young children who must wait 10-18 years for monies (earning loads for the insurance company but all but nothing for them) that should be going to help them during the devestating time of transition following the death of a parent. These people are crooks with no conscience who prey on the weakest and most vulnerable among us.

[liberalme]

We the consumers, will be dealt a promise of an investigation and that will be it.

We are dealing with corporations and politicians where the best interest of the American consumer is not a factor.