It's hard to imagine, but it seems that some companies may be mistreating those who have lost loved ones in the military. 

New York's Attorney General Andrew Cuomo has begun an investigation into how insurance companies have paid beneficiaries of fallen soldiers. Cuomo's office has issued subpoenas in this fraud investigation to companies such as MetLife (NYSE: MET) and Prudential (NYSE: PRU)

Allegedly, some insurers have been parking payouts in interest-paying internal accounts that aren't insured by the FDIC. As Cuomo describes it, survivors are issued "checks" that aren't really checks, despite being branded with names of banks such as JPMorgan Chase. When a beneficiary tries to use a check, the insurer must forward the money to JPMorgan Chase before the check can clear. Meanwhile, the insurer is collecting interest on the unpaid account balance, potentially for years, while paying the beneficiaries only a portion of that. According to Bloomberg news, for example, Prudential was recently allegedly earning around a 4.8% return, while paying beneficiaries just 1%.

Worse yet, Prudential reportedly didn't inform beneficiaries that they might want to take advantage of a special provision for military families, giving them one year to move their death benefit into a tax-free Roth IRA. This move not only hurts potential beneficiaries, but also competing financial companies such as Schwab (NYSE: SCHW), which might have managed that money in survivors' IRAs.

In short, it seems that many grieving families of fallen service members are not simply being given a lump-sum payment. Instead, insurance companies may be profiting off them while holding on to much of their money.

Good service matters
Having a reputation for treating customers well is a valuable competitive edge. Insurance is already one of the least-trusted industries, rated behind bank, energy, and health-care companies in the 2009 Edelman Trust Barometer. Clearly, this investigation isn't helping.

Longtime Fool contributor Selena Maranjian owns shares of no company mentioned in this article. Charles Schwab is a Motley Fool Stock Advisor choice. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.