Military-Death Insurance Payouts Under Fire

Casualty Return Afghanistan Staff Sgt. Conrad A. Mora

Death benefits are part of military service, but some families may not be getting the whole story.

The government works with private insurance companies to collect and pay out the death benefits. The amount going to families can be in the hundreds of thousands of dollars.

Some are criticizing insurance companies Prudential and Met-Life for making money off the death benefits.

Families can hold off using their money and leave it in an account administered by the insurance company, which will pay interest. The insurance companies invest the money, realizing a bigger return than they pay out in interest. Critics also point out that many typical bank saving accounts pay more interest.

"Insurance companies -- that's their business is to hold our money, however they get it, and make more money than they have to pay out," said San Diego State finance professor Russell Block.

Bob DeFillippo of Prudential Insurance, though, said that accounts that pay more interest are not "liquid"; for instance, investors can get more interest in a CD or money market, but they do not have instance access like they do with the insurance company's account. To get higher interest rates, there are usually strings attached, he said. For instance, the interest rate difference between a checking or savings account.

By one account, about 28 percent of survivors of soldiers and veterans keep their money in an account for more than two years.

The Prudential and Met-Life accounts are also not insured by the FDIC -- another sour point from critics who say families aren't told enough about their financial options.

"It would be a good idea -- in big bold letters -- to tell people: This is not insured in an FDIC-insured account," Block added. "It's an investment account, and it's risky.  And by the way, if you want to take this elsewhere and talk to your own investment advisor, you can do so."

Block said mourning military families should be guided through their financial options.

"Anybody who is in bereavement is not in a position to make serious decisions," Block said. "In fact, they shouldn't for a year or two."

Attorney and military veteran Bridget Wilson said she worries how ready the family of a fallen soldier might be to to make decisions about those benefits.

"I think no one who has someone they care about die is in a good place to make financial decisions, and combat deaths are probably particular tramatic, because they're frequently young people," Wilson said.

 Prudential released  a statement on Wednesday, which reads in part:

 The account is designed to give beneficiaries a place to hold money they received during a very emotional time in their lives -- while they decide what they want to ultimately do with the funds. 

We fully disclose the nature and terms of the account to accountholders, including the interest credited to their account.  We also make it clear to beneficiaries that they can withdraw some or all of their money immediately or at any other time and without delay.  And, we offer third-party financial counseling to beneficiaries of servicemembers to help them make the best decisions about the use of these funds and other governmental benefits.

The interest rate paid to accountholders has been comparable to other on-demand accounts, especially given that the funds are invested to ensure that the proceeds are readily available to beneficiaries.  While we have had years where we have made a profit, we have also had years when we had losses because we assume the investment risk for the money in the Alliance Account.

DeFillipo said the company does offer third-party financial counseling to military families

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