Congressman Garamendi Outraged by Insurance Industry Scam Putting at Risk Military Life Insurance Policies
WASHINGTON, DC – Congressman John Garamendi (D-Walnut Creek, CA), a Member of the House Armed Service Committee and California’s first elected Insurance Commissioner, today expressed outrage following the publication of an exposé by Bloomberg that revealed a widespread insurance industry scam putting at risk the life insurance policies of military personnel and their families.
When military personnel and others with life insurance die, some insurance companies have sent letters to families offering to provide a "checkbook" instead of a lump sum reward. These "retained assets programs" are hypothetically available at any time and accrue a small annual interest rate. However, the funds in the checkbook are not FDIC insured and not segregated from the insurance company’s general fund. This scam allows the insurance industry to accrue interest far above the policyholder. In 2009, Prudential’s general account brought in a 4.4% dividend. In 2010, families in the retained assets program were only given a 0.5% dividend.
"I’m outraged. Once again, the insurance industry is putting their profits before their policyholders’ interests," Congressman Garamendi said. "They are exploiting vulnerable military families at a moment of grief, literally taking money out of their wallets."
"These insurance companies are holding onto beneficiaries’ money for years after the deaths of loved ones without informing them that their money is not earning a market interest rate and is not FDIC insured," Garamendi added.
According to Bloomberg, these accounts are not insured by the FDIC and the insurance companies do not inform the beneficiaries of this lack of security, even though the Securities and Exchange Commission mandates that non-insured funds be billed as such. In many letters sent to families about the program, no mention of FDIC insurance is made.
As a representative of California’s 10th Congressional District, Congressman Garamendi represents Travis Air Force Base and thousands of military personnel, veterans, and their families.
Congressman Garamendi is considering a legislative response to help protect the life insurance policies of military families.