The American Legion told a judge yesterday that Prudential Financial Inc.’s practice of collecting interest on unpaid veterans’ life-insurance benefits is “unlawful and dishonest,” according to Bloomberg Business Week.

The American Legion asked permission to file a legal brief supporting a pending case in Springfield, Massachusetts, against Prudential Insurance Co. of America, a unit of Newark, New Jersey-based Prudential Financial.

The pending lawsuit by the families of deceased veterans accuses the insurer of failing to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies. Instead, the lawsuit says that Prudential strongly encourages beneficiaries to keep the money in accounts with the company, which pays them a small amount of interest.

The “practice is unlawful and dishonest,” the American Legion said in its court filing. “It is especially objectionable because sophisticated money managers are making an unwarranted and unlawful profit from the deaths of those who have given the most to preserve our nation’s way of life.”

The Legion feels that beneficiaries should be paid in a lump sum when requested initially – and should be paid immediately, not issued a money-market checkbook – and that no company should be able to retain the earnings on the withheld money while paying the beneficiaries the “going rate” only. In the 1960s, the Legion testified that all death benefits should be handled directly by the government and not by any private insurer.