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Posted: 9/21/2004 8:24:53 PM EDT
SGLI = Servicemans Group Life Insurance - $250,000 max payment by the .gov.

Issue Date: September 27, 2004

War’s death toll boosts costs for SGLI
Government’s payout will top $112 million

By Karen Jowers
Times staff writer

Taxpayers will foot the bill for more than $112 million in life insurance payments to survivors of troops killed in Iraq and Afghanistan, officials said.
By law, in any year when military deaths are higher than the expected peacetime death rate, the government pays the extra costs. These expectations are based on mortality rates used by insurers.

The law was designed to prevent military service members from bearing the cost of war through possible increases in their premiums for Servicemembers Group Life Insurance.

Defense Department officials reimbursed the Department of Veterans Affairs’ SGLI program $12.4 million for extra costs in the year ending June 30, 2003, said Pentagon spokeswoman Air Force Lt. Col. Ellen Krenke.

This year’s costs have not been determined, but they are expected to be in the neighborhood of $100 million, Krenke said.

All but a few service members who have died in the war had SGLI coverage, and most had the maximum $250,000 coverage, said Stephen Wurtz, deputy assistant director for insurance for the VA.

As of Sept. 10, SGLI had paid 980 claims totaling $239.2 million to survivors of troops who died in Operation Iraqi Freedom, Wurtz said. Meanwhile, SGLI paid 138 claims totaling $34 million for troops who died in Afghanistan.

Although concerns have been raised over the last 30 years that some life insurance agents take advantage of service members, there are a number of companies with long ties to the military community that write insurance policies on service members that pay claims in the case of war, unlike most private companies. Many of these companies were formed because service members could not get coverage that didn’t include such “war clauses.”

Although these companies are not taxpayer-subsidized like SGLI, they, too, have been paying claims for those who have died in the war. For example, the Military Benefit Association has paid 35 claims totaling $6.2 million for deaths related to the fighting in Iraq and Afghanistan.

5Star Life Insurance, an arm of the Armed Forces Benefit Association, has paid $3.2 million in claims due to the war. “Our losses are higher than we’d expect in peacetime. It’s not something we celebrate, but it’s very tolerable for us, and it’s one of the reasons we exist,” said Craig Piers, president of 5Star Life Insurance.

The Navy Mutual Aid Association, which is open to all the sea services, has paid 17 claims in Iraq, for a total $2.7 million, and one claim in Afghanistan for $700,000.

The organizations, formed at the request of military officials when there were no insurance policies available without war clauses for service members, said the death claims have posed no risk to their financial health. In fact, over the last three years, they, like SGLI, have been able to reduce their premiums.

“Any company has to have adequate reserves to cover this sort of thing, and we do,” said Bud Barnum, president of the Military Benefit Association. He noted that the association’s policies, unlike SGLI, allow service members to continue the same coverage for the same price when they separate or retire from the military.

At the Navy Mutual Aid Association, officials minimize the risk in a variety of ways. For one thing, only one third of their policyholders are currently on active duty, said Michael McHugh, a retired Navy captain who is vice president of membership of the association. The others are retirees, former service members, spouses and their children. Those on active duty are widely dispersed throughout the sea services, with varying occupations.

NMAA also has set up a special war reserve of funds, and has not yet had to tap it, McHugh said.

“There is also the very nature of life insurance in general, which relies upon a large number of people ‘pooling’ their premiums to assume the risk,” McHugh said. “All of these practices have worked for us for 125 years, and there have been plenty of conflicts during that history.”

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