Hey, here’s an interesting tid-bit you may not know about your company: they want to work you until you die so they can collect large amounts of insurance money (queue evil laugh, glass of brandy, and fine Corinthian leather chair). All joking aside, it’s true, and fairly common. Companies will often take out life-insurance policies on employees. They last for years even after the employee has left the company. When the current or former employee finally kicks the bucket, the tax-free proceeds go to the employer, not the family. It’s known as dead peasants insurance because, well, you’re just a dead peasant in your company’s eyes. The loss of your life impacts the organization’s productivity. They deserve a payout, don’t they?
The company will use the proceeds to pay for retirement benefits and other perks not for you or your fellow worker, but for the company’s top executives.
Sounds crazy? Consider these statistics:
Companies pay a whopping $8 billion in premiums each year for such coverage, according to the American Council of Life Insurers, a trade group.
The policies make up more than 20% of the all the life insurance sold each year.
Companies expect to reap more than $9 billion in tax breaks from these policies over the next five years.
The policies are treated as whole life policies. So, companies can borrow against the policies (though the IRS won’t let them write off the interest) and the death benefits are tax-free.
Hundreds of companies — including Dow Chemical, Procter & Gamble, Wal-Mart, Walt Disney and Winn-Dixie — have purchased this insurance on more than 6 million rank-and-file workers
How do you know if your employer has purchased a dead peasants policy? You don’t. Here are a list of employers who may have purchased a policy on your life.
Some examples of dead peasant insurance include:
Jane St. John had two children and was pregnant with a third when her husband, a butcher at a Winn-Dixie store, was killed in an auto accident. When the Killeen, Texas, woman called the company to ask about insurance, she said she was told about a $17,500 policy to which she was entitled. St. John said Winn-Dixie told her nothing about the $102,000 the company collected from a corporate-owned policy on his life. She found out about it this summer, eight years after his death, from a lawyer who researched court records. The idea that the company would secretly insure lives, and then not share the benefits with the families, “is sick,” she said. “That is creepy.”
Mike Rice was a 48-year-old assistant manager when he died of a massive heart attack at the Wal-Mart store in Tilton, N.H. His widow, Vicki, became the lead plaintiff in a class-action lawsuit against the company after she discovered Wal-Mart collected $300,000 from a life insurance policy it owned on him. Vicki Rice believes job-related stress contributed to the heart attack and says it is totally immoral for Wal-Mart to profit from his death.
“In a lot of circumstances, the families don’t get anything”, said attorney Mike Myers of Houstons McClanahan & Clearman, which represents survivors suing companies over corporate-owned policies. The company tries hard to keep the policy a secret.
Labor leaders and some lawmakers have denounced the policies as unjust and repulsive. The companies say profits from the policies can help offset the increased cost of employee benefits and enhance the businesses bottom line.
Corporate-owned life insurance actually comes in two flavors:
Executive or key person policies that insure the lives of top executives. This coverage has been around for decades and has a clear business purpose, since losing the expertise, knowledge and contacts of top managers can be financially devastating for companies.
Broad-based or janitors policies that insure rank-and-file workers. Here the purpose is basically profit. The life insurance proceeds are tax-free. The policies have an investment component that allows companies to earn tax-deferred returns while the employee is still alive. And, of course, companies can take out tax-free loans on the policies. All these gains and income are used to fund operations, pay for executive compensation or boost other benefits.
Congress recently tried to crackdown on the practice. However, companies insist that dead peasants policies have a legitimate business function. But the IRS has been cracking down, arguing that many of the arrangements are nothing more than tax shelters. The insurance industry has rallied against such reforms and so far has won. With all the other battles going on in congress right now, I doubt we’ll see any sort of reform or protection anytime soon. Companies are supposed to inform the employee that these policies exist, but there currently isn’t a good way to track if employees are being informed.
Sometimes (not always, but just sometimes), if corporate shenannigans sounds too yucchy to be true, it's because it isn't true, but you just so badly want it to be. Bigotry comes in a lot of flavors.
