Guest Editorial:
By Aaron Glantz
The Progresssive Media Project

Insurance companies should not be allowed to cheat the families of dead American soldiers and Marines.

   But that’s what Prudential is accused of: siphoning off hundreds of millions of dollars in interest on service members’ life insurance policies.

   Rather than paying a lump sum to survivors when a policyholder dies, Prudential has been keeping the money in its own accounts, issuing checks to the beneficiaries that draw on those funds.

   According to a lawsuit filed in a Massachusetts federal court, Prudential then invested the funds in its own portfolio earning 5.69 percent interest, while paying the beneficiaries just 1 percent.

   That means, on an average death benefit of $400,000, Prudential allegedly stood to earn $22,760 in interest over the course of a year, while paying survivors just $4,000. When you add this across the more than 5,500 American service members killed in Iraq and Afghanistan, Prudential may have made of hundreds of millions of dollars on the difference.

   A Department of Veterans Affairs annual report reveals Prudential paid more than $1.2 billion in death and traumatic injury claims in 2009 alone, earning interest income on nearly every claim. For the year, the document reveals Prudential cleared more than $100 million that allegedly should have gone to grieving families.

   And Prudential has been handling the VA’s life insurance claims for 11 years.

   Prudential spokesperson Bob DeFillippo refused to comment on the lawsuit, but said there’s nothing wrong, or illegal, about Prudential keeping the death benefits of the bereaved in its portfolio or holding onto a portion of the interest.

   “It’s like a checking account with a bank,” he said. “You deposit your money, and the bank pays you a fixed rate of interest. The bank is then free to make money on your deposit by investing it somewhere else.”

   In Washington, the reaction to the allegations against Prudential, which first surfaced last month in Bloomberg News, has been predictable. High-ranking Pentagon and VA officials expressed shock and announced investigations. Congressmen and senators introduced bills to change the way insurers pay life insurance policies and planned to hold hearings on the fraud.

   But none of them appear to be asking the obvious question: How did private industry come to control the benefits of dead and wounded soldiers in the first place?

   Soldiers and veterans pay for the life insurance, which is marketed as a VA program and regulated by acts of Congress. VA documents reveal taxpayers have been chipping in hundreds of millions more in to shore up the fund due to the “extra hazards of military service.” If Prudential were to go belly up, we can only assume Congress would intervene and taxpayers would be on the hook.

   “This is a classic example of why we need government,” says Paul Sullivan, executive director of Veterans for Common Sense. “Prudential needs to publicly apologize, pay back the families and sever their ties with the VA.”

   And after that, the government should administer the program itself.

   Because there should be no room for corporate profit when it comes to grieving the death of a loved one in war.

Aaron Glantz is an editor at New America Media and author of the book, “The War Comes Home: Washington’s Battle Against America’s Veterans” (University of California Press). He can be reached at pmproj@progressive.org.