When Prudential Financial Inc. invests the death benefits owed to survivors of soldiers killed in battle, the money comes from a source with deep pockets: the U.S. government.

After a U.S. soldier dies in combat -- including the more than 4,000 service members who have been killed in Iraq and Afghanistan -- the Department of Veterans Affairs sends Prudential the full amount of each family’s life insurance coverage, usually $400,000.

The government has paid Prudential $1.7 billion for these benefits since 2003, when the war in Iraq began, according to information provided by the VA, Bloomberg Markets magazine reports in its November issue.

Prudential holds that taxpayer money, invests it and reaps the gains.

Here’s how it works: If survivors request a lump-sum payment of the death benefit, Prudential opens a so-called retained-asset account, a quasi-checking account that allows families to draw money when they’re ready to spend it.

Until the money is used, it stays in Prudential’s corporate account. There, the insurer invests the funds, mostly in bonds, making returns as much as eight times higher than what it is paying out to holders of the retained-asset account.

What this means is that Prudential is investing -- and profiting from -- death benefits owed to the families of slain soldiers, using money provided by the U.S. government.

‘Sweetheart Deal’