A limited number of insurance companies and broker-dealers are under investigation for deceptive sales practices to target military members with financial products that have features that reduce their benefit to service members. Although most service members already receive considerable low-cost life insurance as part of their government benefits, state insurance regulators we contacted said that at least six insurance companies have been selling a hybrid insurance product that combines life insurance coverage with a side savings fund to thousands of service members at installations across the United States and around the world. For example, four of these companies were licensed to sell insurance in at least 40 states, and the other two licensed in at least 35 states and five of them had received DOD approval to conduct business at U.S. military installations overseas. These insurance companies also appeared to market primarily to junior enlisted service members. According to state insurance regulators we contacted, the companies primarily sold insurance policies to military personnel during their first few years of service, including during their initial basic training or advanced training provided after basic training. Although the exact number of service members that have purchased these products is not known, regulators told us that these companies sell thousands of policies to military personnel each year. We also found evidence that large numbers of these products were being sold. For example, base personnel at one naval training facility we visited said they regularly received several hundred allotment forms each month to initiate automatic premium payment deductions from military members’ paychecks for these insurance products. These products provide additional death benefits but are significantly more expensive than other life insurance coverage available to service members. For example, service members purchasing these products make payments of about $100 per month for additional death benefits generally ranging from $25,000 to $50,000. In contrast, all service members are currently able to purchase $400,000 of life insurance through Servicemembers’ Group Life Insurance (SGLI) for $26 per month. Although the insurance products these six companies were selling also included a savings component that recently promised to earn interest between 6.5 and 8.1 percent, these products also included features that reduced the likelihood that service members purchasing them would accumulate large amounts of savings. As we reported, military members move frequently and many leave the service after a few years, which which may reduce their ability or willingness to continue making payments to fulfill a long-term financial commitment. However, the products being marketed by these insurance companies require a long series of payments to result in significant benefits to their purchasers. For example, most of the payments made in the earliest years—ranging from 1 to 7 years— would be used to pay the premiums for life insurance coverage. In subsequent years, more of the service members’ payment would be allocated to the savings component. In addition, these products also included features that allowed the companies to use the money accumulated in a service member’s savings fund to automatically pay any unpaid insurance premiums. Although this would extend the period of time that these service members would be covered under the insurance policy, data we obtained from several of these companies indicated that 40 percent or more of the service members that purchased these products stopped making payments within the first 3 years. With regulators indicating that most purchasers failed to request refunds of their saving fund balance, few likely accumulated any savings as a result of their purchase. According to our analysis, the amount of time that it takes for a service member’s savings fund on these combined insurance and savings products to become totally depleted through the automatic payment provision varied. Figure 1 shows the impact on a service member who purchases the product providing $30,000 of insurance coverage that requires full payment of the total life insurance premimium during the first 7 years. As the figure shows, the money in the savings fund of a service member who makes the required $100 monthly payments for 4 years and then stops paying would be totally depleted to pay the subsequent insurance premiums in just over 1 year. This occurs because of the large premiums due in the early years on this type of policy, and because the accumulated value of the savings fund for this product was modest. For the other type of insurance and savings product typically being sold to military members, which involves lower but continuous premium payments over the life of the policy, service members who halt their payments after 4 years would have accumulated sufficient savings to extend the $30,000 of life insurance coverage for another 13 years. In contrast, a service member could have used the $100 monthly payment to instead purchase $30,000 of SGLI term coverage at a cost of only about $23 per year and invest the remainder into the Thrift Savings Plan (TSP), which is the low-cost retirement savings plan available to military members and federal employees. Although ceasing payments on SGLI after 4 years would terminate the service member’s life insurance, the money contributed to the TSP and left to earn just 4 percent interest would grow to about $9,545 in 20 years. The companies that market primarily to military members have been subject to actions by state insurance regulators, the Department of Justice (DOJ), DOD, and others. In the report we prepared for this committee, we identified at least 17 lawsuits or administrative actions that had been taken against companies that market primarily to military members. In many of these actions taken by state and federal regulators, federal law enforcement organizations, or others, the companies have been accused of inappropriate sales practices and agreed to settlements as part of lawsuits or administration actions involving fines, refunds, and other actions. For example, in December 2002, DOJ announced a settlement against an insurance company that had marketed a combined insurance and saving product primarily to military members in which the company paid a penalty and agreed to no longer sell insurance in the United States. According to the DOJ complaint, this company had allegedly defrauded military service members who purchased life insurance policies from the company by having its agents pose as independent and objective counselors representing a nonprofit fraternal organization that offered, as one of its benefits, the ability to purchase the company’s life insurance. The insurance companies that marketed primarily to service members have also been accused of violating DOD’s own solicitation policies for many years. For example, a 1999 DOD Inspector General report and a DOD-commissioned report issued in 2000 found that insurance companies were frequently employing improper sales practices as part of marketing to service members. Among the activities prohibited by DOD that the Inspector General’s report found were occurring included presentations being made by unauthorized personnel, presentations being made to group gatherings of service members, and solicitation of service members during duty hours or in their barracks. More recently, DOD personnel conducted an April 2005 proceeding in Georgia to review the practice of one of the companies currently being investigated by state insurance regulators regarding allegations of multiple violations of the DOD directive on insurance solicitation. Among the practices alleged at this hearing were misleading sales presentations to group audiences and solicitations in unauthorized areas, such as in housing or barracks areas. DOD recently began maintaining an online listing of actions taken against insurance companies or their agents by various DOD installations. As of August 11, 2005, this web site listed 21 agents from some of the 6 companies that market primarily to military members that are permanently barred—or have had their solicitation privileges temporarily suspended—at 8 different military installations. Our own work also found that problems involving sales of insurance products to military members appeared to be widespread. We reported in June 2005 that DOD only recently began systematically collecting and disseminating information on violations of DOD’s solicitation policy by sellers of financial products. However, as part of that report, we also surveyed DOD personal financial training program managers and found that nearly 37 percent believed that insurance company representatives had made misleading sales presentations at their installations during 2004, with 12 percent believing that such presentations were occurring routinely. At the two bases visited as part of work for this report, we also found evidence that problematic sales to service members were occurring. For example, our review of statements taken from 41 service members that military investigators interviewed at one Army base indicated that more than 70 percent of the service members said that the insurance sales personnel had described the product being sold as a savings or investment product rather than as insurance, which violates state insurance laws. Additionally, many of these service members also described conduct that appeared to represent instances in which insurance company sales personnel had violated one or more of the restrictions in DOD’s solicitation policy, such as making these sales presentations during group training sessions. In addition to these past actions, insurance regulators in as many as 14 states are also conducting examinations of these six insurance companies, as well as others that market to military members. Among the issues that regulators are investigating are whether representatives of these companies have not been clearly identifying these products as insurance, as state laws require, but instead marketing them as investments. Regulators and other organizations are also examining whether the sellers of these products are misrepresenting information on the forms used to initiate pay allotments to deduct the payments for the products directly from the service members’ pay. In addition, insurance regulators in some states are currently reviewing whether these combined insurance and savings products that are being sold to military members comply with all applicable state insurance laws and regulations. For example, regulators in Washington state rescinded approval to sell the products that had previously been approved for sales by some of these companies because the savings component, which the companies had been labeling as an annuity riders, was determined to not meet that state’s annuity regulations. Regulators in Virginia also recently ordered three companies that marketed primarily to military members to cease sales of combined insurance and savings products because of concerns over whether these products adequately complied with that state’s insurance law. However, although these products may be marketed in as many as 46 states, currently only 14 states are involved in such reviews of the legality of these products. As a result, in the report we prepared for this committee, we recommend that Congress act to have insurance regulators in all states conduct reviews to ensure that the products being marketed to military members adequately comply with state insurance laws.