Insurance Companies Profiting Off Dead American Soldiers

(July 28) -- Bloomberg Markets magazine has a disturbing scoop: Insurance companies are misleading families of fallen American soldiers and keeping the bulk of the profits from the interest on their life insurance policies.

Along with much other evidence, reporter David Evans offers up the anecdotal example of Prudential Financial Inc. and Cindy Lohman, whose 24-year-old son Ryan was killed in Afghanistan in August 2008. Ryan had a $400,000 policy. But instead of sending Lohman a lump payment, the insurance company sent her what looked like a checkbook and a letter saying, "The full amount of her payout would be placed in a convenient interest-bearing account, allowing her time to decide how to use the benefit," Evans writes.

But when she tried to use the "checks," they were twice rejected -- the money wasn't sitting in a bank but instead in Prudential's general account, so funds had to be transferred before payments could clear. What's more, the company was earning interest on the sum while it stayed on its ledger. "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," the article reports.

These "so-called retained-asset accounts" are a common, unsavory practice in the insurance business. Moreover, the money in those accounts -- $28 billion in all -- isn't insured by the Federal Deposit Insurance Corp., which exposes not just the insurance holders but the entire financial system to tremendous risk. And even after the financial regulation law signed by Obama last week, the $19.1 trillion insurance industry will remain unregulated by the federal government.

Read more at Bloomberg.