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Preying on soldiers

Congress and the Pentagon should protect members of the armed forces from unscrupulous investment and insurance companies.

The least the Pentagon and Congress can do for U.S. military personnel is to protect them from domestic swindlers before they are shipped off to fight in Iraq and Afghanistan.

A new report by the Government Accountability Office says that service members are routinely targets of financial exploitation by unscrupulous investment and insurance companies. The agency is urging Congress to enact protections that will shield soldiers from unnecessary insurance policies and dubious investment products that are often hawked right on their bases.

The GAO investigators have documented a variety of ways that tens of thousands of naive military personnel are fleeced. One investment product known as a contractual plan is almost exclusively sold to military personnel because the civilian world understands it is a bad deal. Under this type of mutual fund, the buyer pays monthly contributions over 15 years, with half of the first year's investment going entirely toward sales charges. The GAO found a high lapse rate for these plans.

Life insurance companies also prey on vulnerable soldiers. The military already offers its soldiers $250,000 worth of coverage for about $16 per month, with the ability to sign up for more at about the same rates. But on some bases, insurance agents who appear to have the imprimatur of the military use high-pressure and misleading sales pitches to sell supplemental policies. Soldiers are persuaded to deduct $100 per month from their modest salaries for added coverage of $30,000 or so. It's promoted as an investment and savings plan, but investigators found that most of those policies lapsed within three years, well before there was any cash value.

Even when the Pentagon enacts rules to protect service members from predatory practices, unscrupulous insurance agents have found a way to slither around them. For example, military personnel are given a week before a payroll deduction for an insurance premium becomes effective so they have time to reconsider. Investigators found insurance companies were sidestepping the waiting period by arranging to obtain the premium through a savings account. The soldier's payroll deduction was made to appear like a savings plan.

Legislation has passed the House with strong bipartisan support that would address a number of these issues; a Senate committee held a hearing on the GAO findings this month. With so many soldiers facing injury and death in Iraq, the last thing they need to worry about is whether they were conned at home.

[Last modified November 28, 2005, 01:04:15]