Life insurers — including Prudential, which provides life insurance for the Department of Veterans Affairs — keep payouts to families in their own corporate accounts, earning more interest on the money than they give to the beneficiaries.
Bloomberg reports that many life insurance companies send beneficiaries a “checkbook” when they opt to get their money in a lump sum. The companies assure families that the money is safe with them until they need it.
But the money is held in the insurers’ general corporate accounts, which are not FDIC insured. The money earns interest for the insurers, only a fraction of which is given to the families.