In other words, the insurance companies are still earning money on benefits after they are already supposedly paid out, well after the death of the person who has been insured. Instead of the lump sum requested, the beneficiaries are sent a book of "checks" (really drafts) but when they try to write an actual check on what they think is an actual account, the "check" won't work. That's when they find out what is going on.
Lohman, a public health nurse who helps special-needs children, says she had always believed that her son’s life insurance funds were in a bank insured by the FDIC. That money -- like $28 billion in 1 million death-benefit accounts managed by insurers -- wasn’t actually sitting in a bank. It was being held in Prudential’s general corporate account, earning investment income for the insurer.
Prudential paid survivors like Lohman 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings.
It's a slick trick and you'll have to read about the intricacies of how the insurance companies get away with it to understand what's actually happening. You can do that right here.