A scam has rocked the world of military families that have suffered the loss of a soldier. Rather than pay out a lump sum life insurance claim as promised, the insurance companies instead offer the families what looks like a checkbook.
Instead, these are actually, technically, known as “drafts” and amount to little more than an I.O.U. from the life insurance company.
The drafts are nearly impossible to cash because they are not verified through the banking system.
The insurance companies tell the beneficiary of the policy that this is a safe way to keep money and earn interest. Buried deep in the fine print are the details on how a beneficiary can turn these drafts into an actual lump sum payout.
Meanwhile the insurance companies are paying 1% interest and earning 4% on the money.
Bloomberg reports this money s held in general accounts at huge life insurance companies like Prudential or MetLife, but it isn’t insured by the FDIC. Since this is an insurance company settlement, it is not regulated by banking laws rather by state insurance laws, states who are woefully uninformed and unprepared to monitor what is essentially a financial instrument.
Families of deceased soldiers are under duress when the packet of paperwork appears in the mail. They are adviced to seek a friend to read the document thoroughly or hire a financial planner or lawyer for advice.
One insurance law professor isn’t impressed, stating:
“It’s institutionalized bad faith. It’s turning death claims into a profit center.”
Picture via Dooley
