When insurance “fraud” may be lack of common sense

Metropolitan Life Insurance (6)
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If you have a life insurance policy and you die, what happens to the proceeds of the insurance policy?   They go to your designated beneficiary right?  Sure they do (by the way your beneficiary designations are up to date I hope).  

If you have been reading the papers recently, you would think there is a new insurance scam just uncovered or that insurance companies are not paying the benefits.  In fact, this all started with a story that the families of deceased military personnel were not getting benefits from the insurers and that fraud was involved. 

The truth is that for many years insurers have offered the option for beneficiaries to receive a lump sum payment, in many cases installment payments or check writing privileges against the insurance proceeds.  In the latter case the insurance company keeps the proceeds in its general account, invests them and pays the beneficiary interest on the account balance.  Sure, the insurance company makes money, but the interest paid to the beneficiary is better than they can get in a bank.  Many people simply can’t handle a large cash payment, especially when grieving.  

In the press you hear words like fraud, misleading people and the like.  The Attorney General of NY is investigating (what’s new). It may make good sound bites and second page news, but the flap is largely bogus.  The government is concerned about this style of payout and at the same time is considering legislation that would require 401(k) plans to offer annuity payout options, generally for the same reason insurance companies offer alternative payment options..many people can’t handle receiving a large sum of money intended to last a number of years.  The insurance companies writing annuities make money too. 

The bottom line, if you want all the money right away, take it.  If you don’t, consider some other option.  Ask questions and exercise a little common sense. 

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