In mature financial powerhouses such as the US, especially where finance tends to take the front seat as compared to industry and commodities, new and lucrative markets are hard to come by. Still, people have always been an ingenious lot, and this article my dad just passed me shed light on one such case.

To any conventional person, the concept of insurance is relatively simple. Put in a small sum of money every month for a number of years, and should something tragic befall you or your intended insured party, the insurance company will pay out a certain lump sum.

This lump sum may probably be more than the cumulative amount that you have been paying out for the previous number of months thus far, but when factoring in inflation, the size of the pool of insured people, the odds of tragedy and other factors, the insurance company as a whole is supposed to come out in the black, hence the business.

This is where the story should end, but necessity is the mother of invention, and the need for more money was where the Total Control Account Money Market Option apparently came in. According to the Bloomberg article, a certain Gerry Goldsholle under Metlife came up with the idea of passing on the money to the bereaved party in a unique manner.

Instead of passing it on to the party through his or her bank account or any other means of lump sum payment, the money is deliberately held back by the insurance company in their accounts, whereupon they issue a cheque book to the person for which any amount up to the stipulated payout can be drawn.

Masqueraded as an effort to help the family members manage their money properly at a period where a traumatic incident may impair their judgement, as well as a more secure manner to pay out the sum, the insurance company ends up profiting even further by being able to hold on longer to it's funds. It does this by not passing on the money to be drawn via cheque until the person owed cashes a cheque. Only then does the insurance company transfer the money to the designated bank account. In the meantime, it pays out an apparently measly interest rate of .5%, which, according to the article, is less than half the normal rates banks are offering.

As the insurance company is not a bank, it is also not subjected to the rules that banking institutions have to follow. While consumer banking allows for funds in banks to be insured in the event the bank runs dry, so as to protect the consumer, the insurance company needs no such regulation.

Essentially what this means is that the firm is able to profit before, during and after the insurance scheme. It milks the average consumer, less aware of his financial rights than a financial institution has with another, and it does so in a context where frailty of mind is more common. Should the firm fail, the consumer has no insured value to fall back on, and on the whole, he or she would have been better off had the money been left in a bank. The entire scheme is no doubt is ingenious, but surely it's objectionable...

I've yet to finish the whole article, though. It seems the prime reason the article struck a greater chord was because, to top it all off, this kind of scheme is what every American soldier is apparently signed up for.

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