Troop Death Benefits: We Pay, Prudential Profits
American legion calls for 'overhaul' of system
By Emily Rauhala,  Newser User
Posted Oct 4, 2010 6:21 AM CDT
Updated Oct 4, 2010 7:58 AM CDT
An Army carry team carries the transfer case containing the remains of Army Maj. Robert F. Baldwin.   (AP Photo/Jose Luis Magana)

(Newser) – Prudential is making a profit on death benefits owed to military families—and it's doing so using government funds. When a service member dies, the feds send the full amount of the life insurance policy, usually $400,000, to Prudential. If survivors opt to receive a lump-sum payment, which 95% do, the insurer will open a "quasi-checking account" that allows families to draw money when they are ready. Until the money is used up, however, Prudential invests the funds, earning up to eight times what it is paying out to the "checking account" holders, finds the Washington Post.

Prudential says it typically holds about 16% of survivors' money for at least a year; it has created 60,000 of these kinds of accounts—representing more than $7 billion in death benefits—since 1999. So, what gives? "They have what appears to be a nice sweetheart deal with the federal government," one professor says of the arrangement. "It sure looks like the VA provided an ill-conceived giveaway, or that Prudential played the VA like a fool," says another expert. Counters the company, "Prudential assumes the vast majority of mortality risk for the participants. We also assume all of the investment risk." (Click here for more on the death benefit rip-off)