Military personnel are often young and transient, but they earn a regular paycheck from Uncle Sam. That makes them prime targets for shady sales practices and financial criminals. "Whenever you have a major mobilization of the armed forces, there are opportunities for individuals to use very aggressive sales practices," says John Oxendine, Georgia's insurance commissioner.
Crooks also know when units return flush with extra cash from combat pay. "The sharks are circling the bases," says Kathy Graham, president and chief executive officer of the Better Business Bureau of Coastal Carolina. "Individually, our soldiers don't make a lot of money. Collectively, it's a big payroll."
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Five years ago Kiplinger's revealed that many soldiers had been pitched high-fee investments that included a whopping 50% sales charge the first year. Several months later other news media reported that young service members were being sold expensive life-insurance policies that they didn't need -- and didn't even realize that they had bought.
After a flurry of nationwide investigations and congressional hearings, First Command Financial Planning, which sold the high-fee investments, was fined $12 million for making misleading statements. American-Amicable Life Insurance has now paid $70 million in refunds and increased life-insurance benefits to policyholders.
New laws and Department of Defense rules are supposed to shield military personnel from the bad guys. But the problems haven't entirely disappeared. Once again, abuses in the sale of insurance and investments -- not to mention outright fraud -- are starting to surface. Con artists are using military insignia to sell everything from bogus insurance to contaminated meat. And identity thieves are taking advantage of deployments and the military's ubiquitous use of Social Security numbers to find new victims.
But this time, state and federal regulators, local organizations and the military are on the alert. "We've seen the increasing costs of these personal-finance problems," says Holly Petraeus, director of the Better Business Bureau Military Line, which provides consumer education to military families. "People were even losing their security clearances."
Common scams and inappropriate sales practices can be broken down into four categories. In each case, you can protect yourself -- and find far better deals on the products offered.
After investigations uncovered a nationwide pattern of abuses, American-Amicable Life was obliged in 2006 to provide cash refunds or increased policy benefits to 92,000 policyholders, totaling $70 million, and to discontinue sales of its Horizon Life policy. Plus, the company was banned from military bases for five years.
New rules now ban insurance agents from soliciting military personnel in barracks or at meetings at which attendance is not voluntary. In addition, agents aren't permitted to use superiors or officers to help sign up serv-ice members who are junior in rank or grade, and agents can't misrepresent insurance policies as investments.
The new laws are helping to reduce inappropriate insurance sales on base. Now, however, "sales of inappropriate life-insurance products are occurring off base," says a report by the inspector general's office at the Department of Defense.
In Florida, regulators have also found that unscrupulous agents are changing their tactics, says Ray Wenger, financial administrator for the Florida Department of Financial Services. For example, his office is investigating charges that American Fidelity Life and Trans World Assurance sent a van to pick up military personnel and take them to meetings off base, promising prizes and free dinners. "Instead of going to high-ranking officers and asking them to coerce people to join, they're paying enlisted people $20 to $25 for every person they bring over," says Wenger.
Florida recently issued a show-cause order alleging that the two companies misrepresented an affiliation with the U.S. military and charging that one agent inaccurately claimed the military's own life-insurance program couldn't be counted on to pay. The companies have filed a petition requesting an administrative hearing to dispute the allegations.
In Georgia, the state insurance department has revoked the licenses of several agents who violated its military sales regulations over the past year. It currently has several open cases involving companies accused of violating the new sales laws.
What you can do:
Max out your military insurance first. Servicemembers' Group Life Insurance, or SGLI, costs only 6.5 cents per $1,000 of coverage per month, or $312 per year for the maximum $400,000, regardless of your age or health. You can also get up to $100,000 in coverage for your spouse. "SGLI is a phenomenal insurance product, and it's a great price," says Oxendine.
Check out insurers and agents with your state insurance department if you need to buy additional coverage. Ask about licensing, complaints and disciplinary actions. Make sure the policy doesn't have a war exclusion. Report problems to insurance regulators and to the community-service office at the base.