The Gold Star Mothers: A Second Look

Remember those Gold Star mothers, getting ripped off (or so it seemed) by the insurance company?  I.e., the case where the insuresters were  investing the money at 4 percent and paying the policy holders at 1 percent, using them for a sort of carry trade?   My friend Ignoto weighs in:

Excuse me but in the late 1960s in NYC I noted that TIAA CREF presented ALL surviving benes with a very complex package and at the very end in very tiny print they said, in essence, if you insist we'll give you the money. so, in 2010 I am shocked shocked.

Er--well, right.  But TIAA CREF would have said they were doing you a favor, protecting you from yourself, trying to make sure you used the money for a proper annuity payout, rather than blowing it all on one great gaudy night. Maybe they were required to do it this way: in any event, the chances are we can count them as an instance of the Sunstein/Thaler Nudge,  where the packaging of the benefit can help to predetermine the result.

He's got a point; in the same vein, the California lottery (others too, I assume) gives you the choice of a cash prize or a time payout.  You take a huge haircut if you opt for cash.  The point is clearly to protect you from yourself.   I'm vague on the details, but I've got the impression that there are similar limitations on "structured settlement" payouts in lawsuits.  And that's the point of all those hawkers who pestiferate the web with offers to turn your payment streams into cash.

Still, I'm not sure the "Gold Star Mothers" comparison is apt.  So far as I can tell, there was no limit on how fast the beneficiary could draw out the proceeds.  And it seems like no disclosure of the fact that the insurer was making a packet on retention.    On the other hand, the recipient was very likely better off not taking the money in cash, and the insurer might have been doing her a back handed favor in spite of it self.   Like I said before, this really looks like a case where the insurer needed a good spin doctor.  Too bad they didn't call me.  Or Ignoto: I have his phone number, I can put you in touch.