It’s no news that our military personnel put themselves in harm’s way every day they serve our country. Sometimes they pay the highest price in our defense. Their families pay the price too.

Now the New York Attorney General’s office alleges that insurance companies MetLife and Prudential prey on our fallen heroes’ families by holding onto the death benefits from their life insurance policies.

Most of us assume that, if we die, our life insurance policy will pay off in the form of a check delivered to our family. Instead, these insurers put the service member’s death proceeds into an interest-bearing corporate account, delivering a book of drafts (similar to checks) to the policy beneficiary. The insurer argues this arrangement is a win-win: The account pays a modest interest rate, and the beneficiary can use the drafts like checks. The insurer profits from a portion of the interest if the account stays put.

Some military families feel they have been taken advantage of at the very time when they are most vulnerable.

My bet is that the insurers are mystified as to why military families (and the New York Attorney General) are so upset. After all, the family can write a check on the balance. And it does earn interest. Where’s the beef?

The beefs are two. First, unlike most bank accounts, the insurer’s corporate accounts are not FDIC-insured. That’s a big deal if the insurer goes out of business. Second, the military families miss a tax opportunity by leaving the death proceeds in the insurance company account: For up to one year after receipt, they are entitled to put all or part of the proceeds into a Roth IRA or Coverdell education account, where the proceeds can grow tax-free to fund retirement or education.

MetLife and Prudential informed the beneficiaries that the money could be withdrawn from their accounts, but reports say that the insurers stayed mum about the right to transfer the balance to a tax-sheltered account. The insurers had no legal obligation to brief the family on the Roth IRA opportunity, but surely the families of our fallen service members deserve more consideration. I can understand why the AG is upset.

If you’re a beneficiary of one of these insurer’s accounts, what should you do? According to CPA Sheri Allshouse in Houston, if you want to contribute part or all of the proceeds to a Roth IRA but the one-year deadline has passed, it’s probably simply too late. Nevertheless, she says, there have been cases in which the IRS has shown some leniency in late transfers between Traditional IRAs and Roth IRAs. Talk with your CPA before you conclude that there’s no hope.

In addition, Houston CPA Laura Conway warns that the Roth IRA rollover is available only for life insurance proceeds from Servicemembers' Group Life Insurance (SGLI) and military death gratuity policies, both programs sponsored by the Veterans Administration. Other life insurance benefits are not eligible.

Given the tough financial times we’ve all lived through recently, you may be concerned that your account is not FDIC-insured. Two thoughts here. First, rating agency Standard & Poors assigns a relatively strong AA- rating for financial stability to both MetLife and Prudential, implying that these insurers are unlikely to go belly-up anytime soon.

But you may still prefer to have an FDIC-insured account, and if so you’ll need to transfer your balance to a bank. Be careful that you don’t go from the frying pan to the fire: With some exceptions, FDIC insurance generally covers only the first $250,000 you have at the bank. These days lots of banks aren’t nearly as financially strong as some of the major life insurance carriers, so if you transfer money to one or more banks, be sure to keep the amount at each bank under the FDIC-insured limit. You can use the FDIC’s calculator to determine exactly how much of your bank account is FDIC-insured. And remember that not all banks are members of FDIC. Click here to be sure the bank is a member.

Don’t hesitate to call on us if you have any questions or if we can help in any way.

If you're a big saver and your significant other is a big spender (or vice versa), you might be surprised to learn that might have been the very trait that attracted you to them in the first place.  According to a paper written by Scott Rick and Deborah Small of the Wharton School of Finance and Eli Finkel of Northwestern University:

"Surveys of married adults suggest that opposites attract when it comes to emotional reactions toward spending."

Interestingly, it's been found that most single men and women state that they would actually prefer a mate with similar spending habits.  To read the full article, click here.

Does your retirement plan take inflation into account?  Since Vietnam, inflation has averaged 4.6% per year.  This may not sound like much, but since 1969 the purchasing power of a dollar has dropped by more than eighty percent.

Moreover, an interesting strand of economic research suggests that a retirement planner should also take into account "keeping up with the Joneses" - that is, spending even more in retirement to keep improving your lifestyle along with everyone else.  The historical rate of inflation, alone, understates the challenge investors face in funding a comfortable retirement.

If you're interested in a technical article that explains the details for you, read on...

International stocks are an important component of a well-diversified stock portfolio. Based on world market capitalization, sixty percent of a U.S. investor’s stock portfolio might be allocated to international stocks. A number of other considerations argue for reducing that exposure, however. While no fail-safe formula defines the best combination of U.S. and international stocks, the available evidence suggests that the traditional portfolio of 70% U.S. stocks and 30% international stocks has historically offered enhanced long-term returns with reduced risk, and probably is at least a well-reasoned starting point for most U.S. stock portfolios. To learn why, click here.

In this hour-long interview, Nassim Taleb, originator of the Black Swan hypothesis, argues that investors give too little weight to the risk of statistical “outliers.”  He says that the odds that unlikely events will occur are greater, and their impact is greater, than investors generally perceive.  Daniel Kahneman, well-known authority on behavioral finance, agrees with Taleb’s thesis but argues that the human need for certainty and security will prevent people from perceiving risk differently.  This conversation on perceived risk is especially interesting given the backdrop of the recent upheavals in global financial markets.  A personal note:  Once I got past the first ten minutes, I found the remainder of this hour-long interview intriguing.  The video offers, from an odd quarter, a point of view supporting my typical financial planning advice to avoid excessive portfolio risk and avoid or pay off most indebtedness.  It’s worth a listen if you have the time.  Click here for the video.

Rationality tells us we need to be completely realistic.  But psychological research tells us that holding a few unrealistic views about the world and our place in it can make us healthier, wealthier and happier.

In a seven-minute video, David Booth, the chairman of Dimensional Fund Advisors, explains why inflation makes US Treasury bills riskier for the long-term investor than stocks.