Parents and spouses of military members in Arlington, Garland, Mesquite, Irving, Dallas, Fort Worth, Lake Worth, Colleyville, and through-out Texas would find the way some life insurance companies conduct their bussiness to be disgusting.
The New York Times published an article on August 29, 2010. The article was written by Dan Frosch and is titled “Families of Dead Soldiers Sue Insurer Over Its Handling of Survivors’ Benefits.”
The article starts out telling the reader about Vicke Castro. Her only child, Jonathan Castro, was killed six years ago just before Christmas, when a suicide bomber blew himself up inside an Army mess tent in Mosul, Iraq.
In the days following Jonathans’ death, Ms. Castro vaguely remembers getting a letter and a draft checkbook from the Prudential Insurance Company of America, which provides life insurance to American soldiers.
The letter told Ms. Castro she was entitled to $250,000 from Jonathans’ military life insurance policy. Whenever she wanted the money she could simply deposit one of the checks into a special account that had been set up in her family’s name.
A year later, she finally brought herself to look at the accounts’ monthly statements and noticed the money was yielding an interest rate of just 1.2 percent. She quickly transferred the money to a CD where the interest rate was considerably higher.
Now, Castro and other military families are sueing Prudential, accusing it of profiting off dead service members by keeping their life insurance benefits in the company’s own general account to earn interest for itself, instead of immediately handing the money over to the families.
According to the lawsuit, Prudential held the money in its own coffers and earned an investment profit at 5% to 6%. Only when families wanted to withdraw funds would the company shuttle money in the accounts into better personal accounts, called Alliance Accounts. Before this was done the families would only be earning average interest of 0.5% to 1.5%, according to the lawsuit papers.
Prudential defends its actions saying that the accounts were administered much the same way as banks run convential on demand checking accounts and that they have done nothing wrong or improper. They say that the funds were readily available for military families and that interest rates were on par with similar banking setups.
According to the article, Prudential has been administering life insurance plans for soldiers since 1965, when Congress created Service Members Group Life Insurance. When a soldier dies, beneficiaries can receive up to $400,000 in benefits. Federal law requires Prudential to pay out either in a lump sum or in 36 monthly installments.
When a soldiers’ family wants to collect the lump sum, the Alliance Account is set up for them. Until they actually withdraw the money, it sits in Prudential’s general account.
Lawyers representing Castro and other families say that from the day a claim is made on a soldier or veteran’s death, the money is no longer Prudential’s. Therefore, the company has no right to invest or profit from it at all – especially without giving the beneficiary a choice.
The lawsuit seeks the return of a half-billion dollars that it says Prudential has made off the benefits.
The Department of Veterans Affairs, which oversees this program, is reviewing how Prudential manages the Alliance Accounts.
The lesson to be learned by the reader here is that many insurance companies handle these life insurance benefits in a manner similar to what is discussed in this article. It is important from a financial standpoint for beneficiaries to draw on these monies immediately and to get the money into a better investment/interest paying account. After all, the loved one who took out these life insurance benefits wanted the beneficiary to have some financial security. If you don’t make immediate proper use of these monies, then you are obviously going against their wishes and thoughts for you.
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