When an American soldier dies in combat, his family benefits from a $400,000 life insurance policy. Unless the insurer handling the policy is one of the companies—Prudential Financial, Metlife—that offer bereaved families a “checkbook” for a secure account holding the money that will earn interest (called a “retained-asset account). What the companies don’t say is that there’s no special account for each family: the money is held in a general corporate account, unguaranteed by the FDIC. It earns a tiny amount of interest, sometimes 0.5 percent, compared to what a real bank account would earn. (The insurer, meanwhile, earns a much higher interest rate.)The “checks,” which feature the name of a bank, are really IOUs—the money’s not in the bank and must be sent over by the insurance company. A common practice among insurers—Metlife held $10 billion in death benefits in 2008—the accounts are anything but secure, as panic that the company couldn’t pay out could cause a run that would wipe out the money since they’re not insured by the FDIC. The lack of insurance is never disclosed to soldiers or their survivors.
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