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Is it ethical for insurers to put a beneficiary’s money in a retained asset account?
By Lauren | August 2, 2010
For the past several days, the Internet has been ablaze with stories about how big insurance companies have allegedly mistreated military families. These companies are among many that participate in the Servicemembers’ Group Life Insurance program, or “SGLI,” which provides low-cost life insurance to active duty military service personnel. When those active duty personnel die in the line of duty, their beneficiaries are rightfully entitled to as much as a half-million dollar insurance payout.
Trouble is, the companies that are currently under fire have been accused of misleading service members’ beneficiaries in order to delay making benefit payments. These companies provide beneficiaries with “checkbooks” that may look to a grieving beneficiary as if they’re associated with a bank account. However, the “checks” are really just drafts that only the insurance company will honor. The beneficiary can withdraw the money by submitting one of the “checks” at any time, a fact that gets spelled out somewhere in the thick packet of papers that accompany the “checkbooks.” Until the beneficiary figures that out, however, the insurance company keeps the money in a “retained asset account” that earns interest. The beneficiary gets a small percentage of that interest, and the insurance company pockets the rest.
It’s important to acknowledge that grieving beneficiaries are often ill-equipped to make smart financial choices. A retained asset account can provide a useful service, allowing the beneficiary to make at least a little interest while the money is kept safe with the insurance company. So, is the practice of putting a beneficiary’s money in a retained asset account unethical? Maybe not - if the beneficiary understands that some of the interest earned on the money will be retained by the insurance company. To my mind, the sleazy part of this practice is less about the insurance company making money on the transaction than it is about the apparent lack of meaningful disclosure. If I were a beneficiary I might not object to the insurance company keeping part of the interest income from my benefit payment, but I’d sure like to know about it before leaving my money with the company.
Insurance companies have been using retained asset accounts for over a decade, but it took the connection with SGLI to make the story a scandal. Bad enough to lose a spouse or child to war - encouraging grieving families to make iffy financial decisions to benefit shareholders is downright awful. Congress is already considering legislation to require insurance companies that participate in SGLI to provide financial counseling to beneficiaries. Personally, I wish they’d go a step further and require insurers to clearly explain their benefit payout options to all beneficiaries. Honest disclosure is good for military families that have made the ultimate sacrifice - and it’s good for the rest of us, too.
Topics: Business Ethics, Social Ethics, business communications, corporate responsibility, customer relations, ethics |
August 12th, 2010 at 2:48 am
I would like to exchange links with your site http://www.thebusinessethicsblog.com
Is this possible?
August 29th, 2010 at 10:29 pm
But what is unethical about an insurance company making investment profit on the money retained and paying some, but not all, of the return to the account holder? That is exactly what banks do. That is what securities firms do. That is how financial institutions work. I don’t understand the ethical issue. Perhaps it is that people don’t understand how banks, insurance companies, and securities firms make money?