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Military Death Benefits: When Principle Should Outweigh Profit

Sometimes it’s not the money, it’s the principle, which is exactly what a group of military families are trying to say to Prudential Insurance in an amended lawsuit filed today to include more plaintiffs and an outright allegation of fraud in the handling of the death benefits of U.S. servicemen.

The company claims to follow an industry standard practice of putting death benefits in so-called Alliance Accounts on which beneficiaries may draw as desired. In reality, the monies stay in the company’s general accounts earning 5 to 6 percent interest and are only transferred into the Alliance Accounts as needed. Those accounts earn 0.5 to 1.5 percent.

If you do the math, it actually just comes down to a few thousand dollars difference, but that’s not the point. This “industry standard” practice amounts to earning money on the deaths of American servicemen. About half a billion dollars worth so far, according to the plaintiff in the suit.

One mother quoted in a story in the New York Times by Dan Frosch described the behavior as a “dishonor [to] my son, who died serving his country.” While Prudential did not comment on the story or the lawsuit, they have, over the past month, vigorously defended the manner in which they have treated military families, insisting they have provided a safe and reliable repository for death benefit funds at a time when families are not thinking clearly about finances.

Prudential has administered life insurance policies for soldiers since the 1965 creation of Service Members’ Group Life Insurance and also works with a program for veterans. The law requires the company to either offer a lump sum or 36 monthly installments when paying benefits.

It is most likely entirely true that Prudential has obeyed the letter of the law, but there is a larger spirit involved in this issue that corporate executives seem to be missing. It’s a matter of respect.

Nobody will argue the point that insurers are in the business to make a profit, but profit should stop where compassion and sensitivity begin. Insurance companies always seem puzzled when they do not have a good relationship with the public. Perhaps they should turn their razor sharp accounting practices on their own behavior and see how the math works out when viewed from the other side of the equation.

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