Representative Edolphus Towns, chairman of the House Oversight and Government Reform Committee, said his panel will investigate the insurance benefits for U.S. soldiers provided by Prudential Financial Inc. and the Department of Veterans Affairs.

Bloomberg Markets magazine reported July 28 that Prudential holds payments for the families of fallen soldiers in checkbook-like accounts that aren’t insured by the Federal Deposit Insurance Corp. The company earns profit on the money held and pays beneficiaries interest, and also offers lump-sum payments.

Several members of Congress have called for an examination of the program administered by Veterans Affairs, and the agency is conducting its own review. Lawmakers are proposing fuller disclosure for beneficiaries of their right to accept lump-sum payments or have the money held in Prudential’s accounts.

“I am particularly concerned that some families of soldiers killed while serving their country may not understand that they have the right to this money up front,” Towns, a New York Democrat, said in a statement.

Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential, said, “We will cooperate fully with the inquiry and look forward to assuring everyone that the program is well managed in the best interests of the beneficiaries.”

Prudential Letter

Towns said in his statement: “It seems unjust that the insurance company can take control of this money without first being granted permission from those it belongs to.”

In an accompanying letter, he wrote Prudential Chairman and Chief Executive Officer John Strangfeld Jr. requesting information about Prudential’s handling of the life insurance payouts.

Towns said he is particularly interested in whether families are fully informed of their options, whether the money is adequately guaranteed since it isn’t deposited in a bank account backed by the FDIC, and whether the interest paid on these accounts is adequate, since the interest rate is determined solely by the insurance company.

Latest Probe

The Towns review is the latest congressional or government probe of the commonly used insurance industry product known as Retained Asset Accounts.

Representative Debbie Halvorson, an Illinois Democrat, has filed legislation to require life insurers to tell beneficiaries how their money will be invested and how much the insurer stands to make from holding the funds. Senator Charles Schumer, a New York Democrat, is drafting legislation on government life insurance programs.

Representative Walter Jones, a North Carolina Republican, is seeking House and Senate hearings on the issue.

Since the Bloomberg Markets story, the Veterans Affairs department said it would open a review and wrote about 10,000 beneficiaries of military and veterans’ life insurance policies on Aug. 8 to say that payments held in Prudential Financial accounts are “secure” and can be withdrawn at any time.

Four Cabinet members, Treasury Secretary Timothy Geithner, Defense Secretary Robert Gates, Commerce Secretary Gary Locke and Health and Human Services Secretary Kathleen Sebelius, have joined members of Congress and Veterans Affairs Secretary Eric Shinseki in calling for an examination or overhaul of the way death benefits are paid to the families of fallen soldiers.

“It’s disgraceful on the part of insurance companies,” Senator John McCain, an Arizona Republican and onetime prisoner-of-war in Vietnam, said in an Aug. 4 interview on Bloomberg Television. “We’ll obviously have to be looking into it.”

Pentagon spokesman Colonel David Lapan said the Defense Department is awaiting the results of the VA review before deciding what action, if any, to take.

“We are not preempting” that review, he told reporters today.