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VA Makes Death Benefit Language More Clear

According to a report by Leslie Scism for The Wall Street Journal (“The VA Will Make Changes in Life-Insurance Accounts“), the Department of Veterans Affairs is planning to rework its materials on claims to make sure that beneficiaries understand they can get a one-time check in the mail.

This is a controversy I’ve talked about before (August 30, Military Death Benefits: When Principle Should Outweigh Profit).

The accounts that have caused all the public debate — the Alliance Accounts — will continue to be used by Prudential. Essentially beneficiaries receive checkbooks and when they want money they write a check. The problem is that the accounts earn little interest while the bulk of the benefit remains in the company’s main accounts earning money — for the company — at a much higher interest rate.

What may be more significant, however, than correcting the impression that the Alliance Accounts are the only pay out option available, is the fact that families will now be apprised — in clear language — of the fact that those accounts are not protected by the Federal Deposit Insurance Corporation, but rather by state insurance guaranty funds only.

Prudential has, from early in the controversy, asserted that it is better for the money to be safe and earning interest at a time when grieving families are likely not making the best financial decisions. This may well be true, but insurance companies are not financial institutions nor should they be in the business of investment.

The important thing to remember with any large insurance settlement is, that if you do not immediately need the money to make a repair or replacement or to meet financial obligations, the money should be put in some vehicle where it’s working for you. My rub has always been the discrepancy in interest levels with this Alliance Account set up.

It can be argued that the difference is only a few thousand dollars one way or another, but beyond giving the clear appearance of profiting from the death of an American serviceman, the insurance company has already made their money on the policy through premiums. The death benefit does not belong to the company and it should not be a profit vehicle for the, no matter how small the amount.

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