Worthy Dead or Alive

It is no secret that businesses can and do take out life insurance policies on individuals working for their company. It is a common practice to insure the lives of key personnel including executives, partners, and people deemed “essential”, so in the event of their death, the company will have income enough to keep the company afloat or to hire someone with equal knowledge and value. This type of policy is called corporate-owned life insurance or COLI. The value of the policy is generally based on the compensation or expertise of the deceased. It is not meant to add to a company’s profit or bottom line.

In April 2002 the Wall Street Journal ran an article written by staff reporters Ellen E. Schultz and Theo Francis entitled “Companies Profit on Workers' Deaths Through 'Dead Peasants' Insurance”, something at the time was deemed “as widespread as it is little-known”.  The article cited the case of Felipe Tillman of Tulsa, Oklahoma who at 29 years old, died of complications from AIDS.  Felipe had not purchased life insurance but the company he worked for CM Holdings Inc did. The company received a death benefit of $339,302 in Felipe’s name even though his employment ended before his death.

Here is what is known about Dead Peasant Insurance:

• It provides a tax break to companies that purchase the policies.
• Companies may take out loans using the cash value of the life insurance policy as collateral.
• Companies have used death benefits to make good on executive bonuses.
• Policies are now written on lower level or “rank and file” employees at amounts that far out way their salary or seniority.
• A death benefit can be paid to the company even when the employee no longer works there.
• Younger employees who die offer larger payouts than older workers due to actuarial computations that figure they are less likely to die young therefore “the same premium amount buys more coverage for them.”
• Though this practice began to boom in the 1980’s, employers were not required to tell employees until 2006. Even still these policies are often done without the employee’s knowledge.   

Some people find this practice acceptable and perfectly within the right of employers. They argue if the company pays the premium then the company should get the benefit. Others would say that their primary objection is the fact that companies have deducted the interest expense for loans from COLI policies from their taxes. However Congress has stepped up on restricting these instances where the interest is allowed to be tax deductible. Then there are those who find the practice appalling and several families have been successful in suing companies for taking out policies on employees without their knowing.

For those that are appalled, you may decide to take a stand and boycott the list of companies that maintain such a practice. If so, be prepared because you will likely not be able to cool or heat your home, use your credit card, talk on the phone, or clean your home, and if you like your whites whiter than white then “forgetaboutit”.   

Many companies track the employees who have left their employment, but anticipate receiving a death benefit by checking the Social Security Administration's database of deaths. So, if you are unsure whether or not you have value and worth – simply because you exist, all you have to do is ask your current or previous employer to find out if you are lucky enough to be on their list.