The official blog of American Veteran Magazine, the national quarterly publication of AMVETS.

Tuesday, September 14, 2010

AMVETS Reacts to VA and Prudential SGLI Story

Yesterday, Bloomberg News published a scathing indictment of VA's contract with the insurance company Prudential to deliver Servicemembers' Group Life Insurance, or SGLI, benefits to surviving spouses who lost their loved ones in combat.

Bloomberg asserted that VA skirted its responsibilities to deliver a lump sum of cash to grieving spouses by automatically enrolling spouses in Prudential Alliance Accounts. However, VA documents show that VA was transparent on these accounts with SGLI recipients from day one.

AMVETS obtained a copy of the form letter VA uses to explain SGLI payments, which we have included below.

Spouses or loved ones who receive SGLI payments are immediately informed that they have full access to the lump sum payment, but that VA has established a secure account, offering an easier option for grieving loved ones, as outlined in section (A) of the letter. For many types of life insurance policies, this is today's industry standard.

A New York Times story from 2008 discussed the struggles some military widows can face when coping with the loss of a loved and the sudden, unexpected influx of their loved one's life insurance payment. The Times story discussed how many surviving spouses--particularly young widows--attempt to fill the void in their lives with material possessions, quickly winding up in debt.

AMVETS believes VA's contract with Prudential establishing the Alliance Accounts was a good faith, transparent effort to help surviving spouses during the grieving process. As part of VA's contract with Prudential, spouses also have access to free financial counseling, which only 10 spouses had taken advantage of when the Times published its story.

Information for those enrolled in SGLI is readily available on the VA Web site in a 2009 VA handbook explaining the lump sum payment option and Alliance Accounts.

AMVETS leaders have also spoken with military surviving spouses using the current SGLI system who have not encountered major problems in receiving their entitlement.

The Bloomberg story also cited the potential interest Prudential gained by keeping SGLI funds in its general account, while only passing along a .5 percent interest rate to its Alliance Account holders, which include SGLI recipients. Once again, AMVETS leaders disagree with Bloomberg's skewed figures, considering that many personal checking accounts do not offer any significant interest, compared to the Alliance Account option.

This afternoon, CNN reported that VA will continue its partnership with Prudential, but also step up efforts to inform members of the military and their spouses of how the program is implemented.

American Veteran will continue to monitor this issue, as the Pentagon and Congress have called for investigations into the Prudential contract. However, at first glance, AMVETS leaders believe that VA has done nothing disingenuous in this situation, but actually sought to look out for the best interest of surviving spouses coping with a tremendous loss.

(Image: First page of a draft letter for SGLI beneficiaries explaining the lump sum payment procedure and Alliance accounts.)

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4 comments:

  1. I take exception to your analysis of this back-alley deal with Prudential. When I fill out my SGLI form I explicity state in triplicate that I want my beneficiaries to recieve a lump sum payment. I would think that the wishes of the service member would be the priority in disbursing death benefits over the financial gain of the VA's insurance partner. Also, I take exception to your belief "that many personal checking accounts do not offer any significant interest". My checking account with USAA earns more than that with a substantially lower balance than $400,000. I have dutifully waited to see the VA's response to this issue and am greatly disappointed. Today I am cancelling my SGLI coverage and beginning my search for private-sector insurance with an organization that will actually adhere to the wishes of the soldier versus the financial interest of their partner organizations. Also, I will be contacting my legislators to voice my lack of confidence in the leadership at the Department of Veteran's Affairs.

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  2. Should we be upset that Prudential invests and earns interest off service member’s premiums too?

    Is the problem that an insurance company is making interest off the proceeds going to the service member’s beneficiary? If the beneficiary writes a lump sum check for 400,000 and deposits the money in their savings account, will we be equally upset with the bank making interest off the money?

    Is the Alliance Account a bad deal for the beneficiary? The SGLI handbook says that the Alliance Account earns "competitive" interest rate which was .5% one term and 1% in anther (depending on what news article you read). Those seem competitive to me and I have USAA too. The bottom line I look at is that the interest earned and the proceeds in the Alliance Account are tax free where in any other savings account, they are not.

    Prudential is not insured by the FDIC? Neither are many banks and credit unions. Prudential’s annual report states that they have 20 reinsurers that in the case they cannot pay due death claims that the reinsures will. If that is not satisfactory, then the beneficiary can always move the money to their bank.

    Looking at the VA webpage, the SGLI program is 99% approved by the beneficiaries. To me, this number is incredible considering the divorce rate. 400,000 dollars going to an "undeserving" parent, spouse or child may cause harsh feelings. Yet 99% approved the process.

    The only problem I can clearly see is that an insurance company is acting like a bank where there are laws that need to be followed and Prudential may not be following them but that area is still under investigation and there is no current proof that they have broken any laws yet. The government and the military are not allowed to make money which is why commercial insurance companies were introduced to begin with. So if Prudential is in violation of these laws and decides not to provide the SGLI program any further, who will be getting the bill? The tax payer?

    Where I wonder is that if the SGLI program is such a good deal for Prudential, why are they the only/major insurance company taking advantage of it sense its creation in 1965? Government contracts go to the lowest bidder, surly in that time some other company would want to get in on a “good deal” unless it wasn’t really a good deal at all.

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