Thursday, July 29, 2010

Fallen Soldiers' Families Denied Cash as Insurers Profit

I heard this story on NPR while driving home last night. It truly made me quite ill:

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.

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.

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.


  1. When I was a wee little tyke and I first heard about insurance (of any form), my first thought was (paraphrasing, of course) "What a crock of shit!"

    Haven't changed my opinion yet.

  2. Ha! I get it, Dave. I remember being a very little girl and asking my father to explain insurance. He laughed and said it was a system in which you placed a sizable bet that you hoped you'd lose!

  3. Remember the Wizard of Id cartoon? There was one where an insurance salesman was trying to sell and explain life insurance to the king. King asked, "What happens if I die young?" Salesman says, "You win!"

    I also feel the only reason why prices for things are disgustingly high in certain countries is because of insurance.

  4. Oh yeah, your dad was smart. It's obvious he passed some good genes and good teaching onto you.


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