DoD Warns About Insurance, Investment Rip-offs
By Rudi Williams
American Forces Press Service
WASHINGTON, May 3, 2005 Defense Department officials are working to thwart insurance and investment marketing practices that exploit military personnel.
"You really have to be a little bit skeptical if somebody says if you invest a little bit of money with us today you'll have a great deal of money tomorrow," warned Air Force Col. Michael A. Pachuta, DoD's director of morale, welfare and recreation policy. "Also, you should shop (for investment opportunities) like you would for anything else. Don't buy the first thing that comes along. Make some comparisons."
Congress raised concerns last fall after press reports documented abusive insurance and investment sales practices at some military installations, including Camp Pendleton, Calif., and Fort Benning, Ga. This caused DoD to step up its efforts to improve oversight and enforcement of policies.
Brand-new servicemembers are sometimes enticed to go off base to what they think are investment seminars that end up being insurance sales pitches, the colonel said.
"Unfortunately, our policies don't apply off the installation," he continued. "So we have to rely on financial education, which we've tried to improve at the first basic-training opportunities with our new servicemembers."
Pachuta recommended that troops ensure there are no combat-exclusion clauses in life insurance that they buy. "We're going to be in harm's way, and it doesn't make any sense to have a policy that won't cover those kinds of events," Pachuta noted.
He encourages servicemembers to seek counseling and advice for financial matters through base family support centers and legal offices.
Servicemembers should be on the lookout for such things as something presented as a savings plan with an insurance component to it. That's a red flag, he said. Before buying insurance, servicemembers should compare what the premium would be for a rate of coverage compared to the rate for the same amount of coverage through the Servicemen's Group Life Insurance program.
About 96 percent of servicemembers have SGLI, and 92 percent of them have opted for full SGLI coverage of $250,000. More than 160,000 servicemembers have military pay allotments for supplemental commercial life insurance. The premiums they pay total over $190 million per year, according to DoD statistics.
"SGLI, to a large extent, especially for single servicemembers who have no dependents, should fulfill most of their insurance needs," Pachuta noted. "But a lot of times, our young servicemembers are looking at putting away some money. And some of these insurance sales pitches are disguised as savings plans, although there's an insurance aspect to it that wasn't explained clearly when they signed up."
Pachuta suggests that servicemembers who want to open a savings account should consider the Thrift Savings Plan. "It's a tax-deferred plan, and there are not many investments, other than tax-free bonds, that have the same kind of advantages that TSP has," he said.
DoD officials are rewriting parts of the department's commercial-solicitation policy to enhance enforcement. This includes a requirement for installations that detect policy violations to report them to their service headquarters, and from there to DoD. The aim is to keep a record of violations to have them available for installations to check when a new insurance agent wants to do business on the installation.
Pachuta said there are 14 prohibited practices in DoD's commercial-solicitation directive, such as soliciting without an appointment, soliciting door-to-door, and soliciting individuals during duty hours at their work places.
"Those are the kinds of policies that limit where, when and how an insurance or investment solicitor can make contact and solicit someone on the installation," he said. "We've also been concerned about agents having access to allotment forms and having them there for the servicemember to sign on the spot. And even the agent taking those forms to finance to get them processed.
"We think that really steps over the line," Pachuta noted. "Pay is a personal decision that a member has to make and they need to be the one to process any kind of allotment for an investment or insurance that goes through the military pay system."
He said financial education is the key to stopping servicemembers from being ripped off by unscrupulous insurance agents and companies.
"The department kicked off a financial-readiness campaign about a year and a half ago with 28 federal and nonprofit private organizations that specialize in financial education, such as the Securities and Exchange Commission, Department of Treasury, and National Association of Securities Dealers," Pachuta said. "These are large, reputable organizations that have good information. They have great Web sites, great training tools, and they provided us information we can use in our financial-education programs.
Pachuta said DoD policies apply to any military or civilian employees as long as the transaction takes place on a military installation. "That has been the problem," he noted. "Some people have been enticed to go off the installation to carry out these business agreements. So we're interested in working with the federal and state regulatory agencies to broaden our oversight."
He pointed out that DoD policies cover insurance and investment agents who operate overseas, as well. The companies have to apply to DoD each year for permission to operate on U.S. military installations overseas.
Pachuta said he'd like to hear from individuals who have been taken advantage of by such unscrupulous practices. People can send comments to him at Michael.Pachuta@osd.mil no later than June 20.
He also recommended that anyone who has a problem with an insurance product contact the appropriate state regulatory agency. "They're the ones that have a strong hammer if there has been a legal or ethical violation," he said.
The Securities and Exchange Commission or the National Association of Securities Dealers are oversight bodies for investment products. "So if someone feels they've been taken advantage of in the financial-investment arena, those are the agencies they should contact," Pachuta said.
The colonel said that to his knowledge no one has been targeting servicemembers deploying to Iraq or Afghanistan. "The problems we've become aware of have been primarily in training environments," he said.