Schumer To Propose To End ‘Insurance Company Payout Schemes’ To Military

U.S. Senator Charles E. Schumer says that he is drafting legislation that would require the Department of Veterans Affairs (“VA”) and the Office of Personnel Management (“OPM”) to guarantee that any life insurance company they contract with offers lump sum payouts of death benefits as the default payment method for the families of lost soldiers and other federal workers. As we indicated yesterday, N.Y. Attorney General Andrew Cuomo is contending that insurance companies used by VA and OPM are using so-called “retained asset accounts” and collecting more than four percent interest on money owed to beneficiaries, rather than paying the money out to those to whom it is owed. 

Schumer says that policyholders and beneficiaries of these accounts “are led to believe their payouts are deposited into an account with all the protections of an ordinary bank account, or in some cases a money-market fund, when in fact the money owed to them is held in the insurance company’s general corporate account, accumulating interest for the insurance company. 
 
“The last thing that family members and loved ones of our soldiers should be worried about is whether the funds they expect to collect from a life insurance policy will be there when they need them,” said Schumer. “It’s deeply troubling that insurance companies would promote these accounts as if they were run of the mill checking accounts, yet the insurance companies profit from the interest and provide no FDIC guarantee that the money itself is insured.”
 
Schumer is offering legislation that would require that any insurance company contracting with VA or OPM be required to offer a lump sum payout as the default payment mechanism for beneficiaries, unless  a beneficiary proactively decided to maintain the funds in an account held by the insurance company. The legislation would make retained asset accounts an opt-in and require sign-off by the beneficiary "after full and fair disclosure of all the risks of retained asset accounts." 
 
Our prior post on this issue can be seen at http://www.financialfraudlaw.com/lawblog/does-life-insurance-industry-defraud-military-families/1287.