A Deepening Debate on Soldiers and Their InsurerS

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September 8, 2004

A Deepening Debate on Soldiers and Their InsurersBy DIANA B. HENRIQUESn May 2002, a young, unmarried soldier named Michael R. Deuel, serving with the 82nd Airborne division at Fort Bragg, N.C., signed up to pay nearly $120 a month for life insurance that supplemented the much less expensive coverage he had through the military.But before he shipped out for Iraq, Private Deuel called to cancel some of his coverage because an officer on base "told him he did not need it," according to an insurance agent who served the base. A year later, in June 2003, the 21-year-old soldier was shot and killed while guarding a propane distribution center in Baghdad.The case of Private Deuel is one of five incidents that some life insurers and their agents have offered as proof that improper meddling by senior officers is preventing young soldiers from getting supplemental insurance coverage before they head for dangerous duty abroad. By their account, thousands of other people in the military - one insurance marketing executive puts the number as high as 6,000 - have had similar experiences and are at risk of sharing Private Deuel's fate. The complaints have led to an investigation by the Government Accountability Office. But an examination of the five cases in which young soldiers said they were dropping their insurance on an officer's advice and were later killed on duty shows that the issue is not so simple. The insurance being sold to the soldiers included policies that provided little additional coverage at high prices. Four of the cases illustrate a little-noticed sales technique used by many insurance agents - selling military people an expensive policy in tandem with a low-cost policy. Agents who complain that soldiers have been wrongly advised to cancel policies do not distinguish between the two types of insurance. In fact, Private Deuel canceled only a policy that would have cost him $100 a month for a death benefit of $32,500, while keeping a $250,000 policy that cost him $18.75 a month. Financial experts say that in most cases young Iraq-bound soldiers would be well advised to avoid the more costly policies, which include a savings plan as well as a death benefit, and stay with the less expensive ones, especially if they have young families. But the insurance industry says soldiers, not their officers, should have the final say. Officers who advise troops to cancel their supplemental insurance "are hypocritical 'insurance gods' who advise lower and younger service people, who statistically are the ones losing their lives in war and are in harm's way, not to buy additional life insurance," said Richard L. Worsham of Hopkinsville, Ky., a marketing director who oversees more than 150 insurance agents serving military bases in eight Southern states and who lobbied for the G.A.O. investigation.Mr. Worsham defended the more expensive products his agents sell as a useful retirement savings tool.The American Council of Life Insurers, the industry's trade group, has encouraged any member companies with similar complaints about officer interference to notify the G.A.O., a spokesman said yesterday. And the issue may be raised in questioning tomorrow at a House subcommittee hearing examining whether young recruits are being exposed to high-pressure or misleading sales pitches, he said.All service members can buy up to $250,000 in low-cost life insurance through the military, and 96 percent of them buy the maximum coverage, currently $16.25 a month. Some soldiers - those with young families or siblings, for instance - may want additional coverage, especially if they expect to serve in dangerous places.But among the five soldiers cited by Mr. Worsham as having bought and then dropped their supplemental insurance, four of them - including Private Deuel - had actually applied for two different types of insurance, sold by the same agents at the same time, according to the application forms and other documentation provided by Mr. Worsham.One was a simple, low-cost insurance policy offered through the Military Benefit Association, a nonprofit organization in Chantilly, Va. That policy, which pays a very low commission to the agents who sell it, gave Private Deuel $250,000 in supplemental coverage for $18.75 a month, $2.50 more than the premiums on the same coverage under his military plan. Financial planners and insurance experts say this form of coverage, called term insurance, is a good bargain for young soldiers of limited means who are seeking more coverage than they can buy through the military.The other policy for which Private Deuel signed up was a Flexible Dollar Builder policy from the Trans World Assurance Company in San Mateo, Calif. This complex product, a form of "cash value" insurance, combines a small, expensive death benefit with an "accumulation fund" feature that allows policyholders to build interest-earning savings over time. That second policy would have cost Private Deuel $100 a month for a death benefit of $32,500. This policy pays a large front-end commission to the selling agent. But its financial benefits to the policyholder accrue more slowly. Indeed, in most cases, the surrender value is less than the total amount paid for the product for at least a decade, even if the policyholder never has to tap into the "savings fund" for financial emergencies. Insurance experts say any cash value policy would be a poor choice for soldiers trying to maximize the amount their families would receive in the event of their deaths."It might very well be good advice to let the low-benefit, high-premium so-called savings program go and stay with the lower-price term insurance," said Joseph M. Belth, emeritus professor of insurance at Indiana University and editor of The Insurance Forum, an independent periodical. In fact, Private Deuel did keep the $250,000 Military Benefit Association policy he had purchased, according to the agents who sold it to him, and canceled the more expensive Trans World policy, a choice that most financial experts would have endorsed.Mr. Worsham also cited the case of Pvt. Marlin T. Rockhold, 23, killed by a sniper in Baghdad in May 2003, leaving a wife and her 9-year-old daughter at Fort Stewart, in Hinesville, Ga. At his death, the young private had $250,000 in military insurance, shared equally by his wife and his mother.But eight months earlier, he had applied to buy $272,000 in additional insurance from one of Mr. Worsham's agents in Hinesville. According to the local agent, Private Rockhold canceled his application three days later, saying a noncommissioned officer at the base had told him he did not need additional insurance.Like Private Deuel, Private Rockhold had signed up for the two types of insurance - but unlike Private Deuel, he had canceled both policies, even the low-cost one through the Military Benefit Association that would have given him $250,000 in supplemental coverage for $18.75 a month, with the entire amount going to his widow.The other policy he canceled was a Flexible Dollar Builder from the American Fidelity Life Insurance Company in Pensacola, Fla., a sister company to Trans World. That policy would have cost Private Rockhold $60 a month for a death benefit of $22,000. Under the terms of the policy, he would not have accumulated any savings in the first year to supplement the stated death benefit, according to the documentation supplied by Mr. Worsham.Two other soldiers on Mr. Worsham's list had also applied for both types of insurance, sold in tandem, and had also subsequently canceled both policies.One, Pvt. Kevin C. Ott, who died in Iraq last June, had applied for just $50,000 of term insurance from the Military Benefit Association at a cost of $3.75 a month. He had also signed up for $25,000 of Flexible Dollar Builder insurance from American Fidelity for $100 a month, but had arranged to contribute an additional amount each month to the policy's accumulation fund, for a total monthly deduction of more than $158 for the second policy. Thus, he would have spent almost $162 a month for death benefits of $75,000, plus the money he paid into the second policy's savings fund before his death.The other soldier, Pvt. Joseph Favorito 3rd, who died in a training accident in Louisiana in late 2002, had also signed up for $50,000 in low-cost Military Benefit Association coverage for $3.75 a month. His American Fidelity policy would have given him $26,000 in additional coverage, but would have cost $60 a month, none of which would have been paid into his accumulation fund in the first year.The fifth soldier cited by Mr. Worsham was Sgt. Troy D. Jenkins of the Army, who was mortally wounded in April 2003 when he threw himself on an unexploded cluster bomb that had been brought to a group of soldiers by an Iraqi child. Sergeant Jenkins left a wife and two young children, according to military news releases.The insurance agency that dealt with Sergeant Jenkins at Fort Campbell, Ky., sells both the low-cost Military Benefit Association term insurance, which would have provided up to $250,000 in additional benefits for his young family, and the Flexible Dollar Builder product. But according to the documents provided by Mr. Worsham, Sergeant Jenkins had applied in October 2002 for only the more expensive policy from American Fidelity, which provided $27,500 in coverage for $100 a month - and listed a friend as the primary beneficiary.Sergeant Jenkins later canceled that policy, saying he was acting on the advice of his "chain of command," according to a letter from the local agent.The complexities in the five cases illustrate the challenges that confront the G.A.O. study team. Mr. Worsham said that he had shipped 6,000 unconsummated insurance applications to the G.A.O. for its review, and he estimated that half of them were applications that soldiers filled out but subsequently withdrew, saying they were acting on the advice of senior officers. The other half, he said, were applications for policies that had not gone into effect because military finance offices had not processed the paperwork that would allow the soldiers to have their premiums automatically deducted from their paychecks. Among the cases are some submitted by R. Lee Brown, a retired command sergeant major who sells insurance near Fort Hood, Tex. Mr. Brown, in a telephone interview last week, said about 50 soldiers filled out applications to buy insurance from him in March, just before they shipped out to Iraq. But so far, he said, none of their payroll deduction paperwork has been processed, leaving them without the additional insurance coverage they wanted.The delayed paperwork may be an administrative lapse, but Mr. Worsham said he and Mr. Brown suspect that the payroll-deduction paperwork was simply "trashed" by finance officers who thought that the insurance the soldiers wanted to purchase was unnecessary. Pentagon officials have said that any military personnel found to have improperly interfered with a soldier's well-informed decision to buy supplemental insurance will be punished. Mr. Worsham rejected the idea that officers who may have advised their troops to cancel policies may not have understood that there are some supplemental policies worth keeping, even if others are far less suitable.Instead, he argued that many in the military establishment are prejudiced against American Fidelity and Trans World, the two companies that sell the Flexible Dollar Builder. In the late 1990's both companies and some of their agents were temporarily barred from several military bases after investigations confirmed that they had violated Pentagon rules governing the sale of insurance on military bases. Both were also sued in the late 1990's over their business practices by the Justice Department and by Florida insurance regulators; they settled both cases without admitting any wrongdoing. http://www.nytimes.com/2004/09/08/business/08military.html?position= & th= & pagewanted=print & position=