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Is the life payout scam really a scam?

insurance probeBloomberg Markets magazine published an investigative article this week accusing life insurers of duping beneficiaries by sending them a checkbook to access their insurance proceeds rather than just sending a check for the full amount of the life policy.

The magazine breathlessly reported that insurers are “secretly” investing the proceeds and making millions off the widows, orphans and fallen soldiers.

The news media have gone into a feeding frenzy, and the New York AG has launched an investigation. The news release AG Cuomo issued today has a telling headline:

ATTORNEY GENERAL CUOMO LAUNCHES INVESTIGATION OF LIFE INSURANCE INDUSTRY FOR DEFRAUDING MILITARY FAMILIES AND OTHERS OF MILLIONS IN CASH PAYOUTS

I thought investigations are conducted to determine if fraud had occurred, but in this case it appears the outcome is pre-determined — all based on one article.

And speaking of the article, Bloomberg has an unsavory record of trashing the insurance industry. We’ve dealt with their writers on fraud stories in the past, and frankly, their style of journalism is not for us. And that’s too bad because insurers sometimes do unsavory things to consumers that should be exposed. The life payout practice in this case, however, doesn’t appear to be one of them.

I just don’t see the fraud here. As long as insurers fully disclose that beneficiaries can write a check for the full amount of the death benefit and receive the cash quickly, there’s no foul. And as insurers claim, some beneficiaries probably like to earn a little interest while they decide what to do with the money.

Kudos to the National Association of Insurance Commissioners for quickly issuing a rational statement on the issue.

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