Proposed legislation now in the U.S. House would create greater transparency among life insurance companies that make money on death benefits for veterans and active-duty soldiers.
The bill, introduced by Illinois Democrat Debbie Halvorson, comes on the heels of an announcement that the Department of Veterans Affairs will start investigating life insurance companies that manage military death benefits. For years, these companies have retained benefits and made money on the interest instead of paying out the money in a lump sum to families and survivors, according to a recent report in Bloomberg Markets magazine.
Rep. Halvorson’s bill would institute new rules and require companies to explain to survivors how their benefits will be used and how much the insurance company might make by retaining the funds.
The measure also recommends the VA make an annual report to Congress regarding compliance with the new requirements.
In some ways, the proposed legislation is a rebuke of Prudential, which provides life insurance to 6 million veterans and active-duty service members. It is, in fact, the only company that does so.
“Hearing about this, I was just outraged,” Halvorson told Bloomberg this week. “It’s corporate greed.”
For their part, Prudential officials have said they’re working with the VA in the wake of complaints and concerns.
A bipartisan group of 10 U.S. senators urged the Veterans Administration in a letter to curb a practice that has allowed Prudential to make millions of dollars off these benefits.
Legislation is likely to emerge in the Senate that, if enacted, would force insurance companies to offer lump sum payments to survivors and families of deceased service members.
“The last thing that family members and loved ones of our soldiers should be worried about is whether the funds they expect to collect from a life insurance policy will be there when they need them,” Sen. Charles Schumer, D-NY, who is drafting the legislation, told reporters this week. “It’s deeply troubling that insurance companies would promote these accounts as if they were run-of-the-mill checking accounts, yet the insurance companies profit from the interest and provide no FDIC guarantee that the money itself is insured.”
Photo thanks to asterix611 under creative common license on Flickr.