Saturday, September 18, 2010

Prudential vs. Veterans

The headline of the recent Bloomberg story could just as easily have been: “Credit Card companies profit from Veterans!” because they charge 21% interest to Veterans and their families. Wait, doesn’t everyone pay 21%?


Exactly.

As far as I know, every group insurance policy in the US pays claims via checkbook, rather than as a lump sum check. Not prominently mentioned in the Bloomberg article: it’s easy/allowed/perfectly OK for a beneficiary to take check #1 and withdraw the entire benefit amount and deposit it wherever you please. I did that last year when my mom died.

Incidentally, if one were to do that and deposit the full amount in a typical savings or checking account, you’d get somewhere between one-fifth and one-half of what Prudential is paying. “CitiChaseAmerica ripping off Veterans Families by giving less than half the interest of Prudential!”

Another big deal in the Bloomberg article is the fact that “a secret deal” was made to take advantage of veterans. How many contracts and amendments to contracts are signed by the Federal government every year? Thousands? I’m sure that some of those affect me in some way and even though I check the news and my mail frequently, I seem to be never informed of these signings. Does that mean they’re “secret”? Yeah, to me maybe. I wasn’t there at this particular amendment ceremony but I think the implication that it was signed in some sleazy motel parking lot under the cover of darkness is probably not accurate.

A little background on checkbooks vs. checks: Unsurprisingly, it turns out that beneficiaries, stricken with grief and confusion following the death of a loved one sometimes make bad financial decisions with the large checks they receive from insurers. Even more unsurprisingly, occasionally they are helped into these bad financial decisions by less than benevolent “financial consultants”. Checkbooks were created to take the pressure off from having to figure out what to do with a couple hundred thousand dollars right now. As previously mentioned, if there was no pressure, one check could be written for the full amount.

The general expectation was that six or so months down the road, a check would be written to pay off the mortgage or deposited into the kids college fund, and the account would be closed. The fact that that doesn’t happen all the time is a happy occurrence for insurers.

Now if there is a bone to be picked with Prudential, it’s that they didn’t choose to treat Veterans better than they treat any other policyholder, by crediting their benefits with the full amount of interest earned, and I think it’s safe to say that that’s what they should have done. Obviously, that opens the door to other groups (should they do the same for Police? Fire? Nurses? Teachers?) and would be an administrative headache (no one cares).

One last thing - you can bet that if Prudential and Veteran's Affairs decide to amend the contract to make that change, it will not be done in secret.

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