VA Officials Knew About Death Benefit Profits

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Revelations that the country's second largest life insurer was profiting from the death benefits of fallen soldiers was news to almost everyone.

"I was stunned to find out that yea, I had been duped," said Cindy Lohman, whose son Ryan was killed in Afghanistan.

Secretary of Defense Robert Gates said, "I actually believed that the families of our fallen heroes got a check for the full amount."

But, as CBS Evening News anchor Katie Couric reports, it wasn't news to the U.S. Department of Veterans Affairs. In fact, in September of 2009, the VA amended its contract with Prudential - ratifying what had been a 10-year long verbal agreement: to allow the insurance company to retain lump sum death benefits of soldiers and deposit that money in its own account.

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"VA has a very solemn obligation to make sure that for-profit companies do not take advantage of the government, or grieving families," said Paul Sullivan of Veterans for Common Sense.

When beneficiaries elect "lump sum" on the claim form provide by the V.A., they expect a check. Instead, they receive a checkbook, and a packet from Prudential - saying the money has been placed in a secure interest-bearing "Alliance Account." But the funds are actually held in the company's own general corporate account. Some years, Prudential earned almost 5 percent interest, while paying survivors less than 1 percent.

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"So from 1999 until 2009 - a 10-year period - Prudential was sending out checkbooks, holding onto billions of dollars in survivors' money, even though the contract required them to send out checks," said David Evans of Bloomberg Markets Magazine. His six-month investigationin late August broke the story.

(Scroll Down to Read the List of Reforms by the VA)

One legal professor said that may make the insurance giant vulnerable to lawsuits. "I think the policy holders have a great legal claim to get back the difference in the interest and they may have a claim for punitive damages as well," said Jeffrey Stempel, of the William S. Boyd School of Law.

But Prudential insists an alliance account is a lump sum distribution - permitted under the contract - pointing out that beneficiaries can withdraw their money at any time. At least one federal judge agreed, dismissing a claim last December.

Nevertheless, the Department of Veterans Affairs announced a list of reformsto its group life insurance programs on Tuesday - vowing to provide better clarity of payment options to the families of fallen soldiers.

Read the VA List of Reforms Below

WASHINGTON - The Department of Veterans Affairs (VA) has reviewed the account administered by Prudential that includes Servicemembers' Group Life Insurance (SGLI) and Veterans' Group Life Insurance (VGLI) programs to ensure beneficiaries are protected, being treated fairly, and accorded the utmost care and respect. VA is also ensuring that benefits are delivered in a transparent way that clearly outlines all available options.

Since 1965, VA has successfully delivered life insurance benefits to survivors of our Nation's Servicemembers and Veterans.

"The most important thing we can do is ensure that beneficiaries have options that are clear, competitive, and come at no personal cost during a time of emotional stress," said Veterans Affairs Chief of Staff John R. Gingrich. "Providing clear and concise options for the beneficiary is a top priority."

VA will continue to provide a full explanation of terms up-front, increase clarity of options and more actively promote current financial counseling to assist in decision making. These efforts will further enhance the transparency that will continue to ensure confidence in this important program.

The department will provide better clarity of payment options by using new documents that ask the beneficiary to choose one payment option, including a lump sum check, or a lump sum Alliance Account (retained asset account) that allows beneficiaries the option to immediately write a check for the entire payment or any lesser amount. VA will also continue to offer the option for payment in 36 monthly installments.

VA worked with beneficiaries, regulators, and subject matter experts to determine appropriate improvements to provide beneficiaries all benefits due under current life insurance programs to include Alliance Accounts in a secure and timely manner.

"Prudential has agreed to implement these adjustments, and the department will continue to carefully monitor this program to ensure that Servicemembers' and Veterans' beneficiaries are well-protected," said Gingrich.

VA is also taking the following actions:

·All SGLI/VGLI related information, including frequently asked questions, website information and handbooks will be modified to clearly and completely explain all aspects of the Alliance Account and all options available to the beneficiary.

·VA will require Prudential to conduct a follow up contact with beneficiaries whose accounts remains open after six months to confirm the beneficiary understands the terms of the account.

·VA will clearly designate the source of correspondence by removing the SGLI seal from all checks, forms, and correspondence and replacing it to show that it is from Prudential, with the subtitle of "Office of Servicemembers' Group Life Insurance".

·VA will identify additional opportunities to encourage beneficiaries to use the free financial counseling service.

·VA will, in coordination with the Department of Defense (DoD), improve support to Casualty Assistant Officers and Transition Assistance Program (TAP) Personnel by helping to prepare additional training materials and instruction.