Trust II

July 29, 2010

In his blockbuster book “The Big Short” Michael Lewis describes a scenario wherein bond trader A asks bond trader B how he is going to screw him in a trade they were considering.  Each of these characters knew that the other was going to take as much as possible with no regard for anyone else.  I guess you can call that trust because it’s all out in the open.  In this arena I can trust that you couldn’t care less about me and that it is, therefore, my job to protect myself from you.

It shouldn’t be that way when we buy a life insurance policy from a company whose stated purpose is to help people in their time of need, but it is.  Bloomberg Markets has just published a piece by David Evans about major insurance firms and the deceptive methods they employ in distributing death benefits.

Apparently the mother of a fallen soldier in our never ending war on terror was informed by one of these companies that her son had named her as the beneficiary of a $400,000 life insurance policy.  The company then asked if she would like a lump sum or a 36 month payout.  She opted for the lump sum and the company sent her what appeared to her to be a checkbook but it was not.  It was a debit book with a number of check like drafts that she assumed were checks.  Each had the name of a major bank on it and it appeared that she had an account with that bank but she did not.  The $400,000 remained in the accounts of the insurance company earning some 5% annually while she was paid interest amounting to ½%.  To add insult to injury her $400,000 was not FDIC protected while in the accounts of the company a seemingly minor point but, given the disasters of the last few years, who knows?

Andrew Cuomo is opening an investigation on this and I wish him well.  The insurance giant is sure to employ the famous “small print defense” where they, like the traders albeit in more refined language, tell us how they’re going to screw us.

Posted July 29, 2010

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