Employers setting up secret life insurance policies on you.

I find it hard to believe the Employee had no knowledge of the policy.

Based upon the amount of the insurance, the employee probably had to have either some medical exam taken or medical records reviewed. In both cases, the employee/proposed insured would need to sign a release form.

Also, the insured usually signs the application along with the owner of the policy/employer.

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In violation of Texas law, Wal-Mart has been taking out life insurance policies on its employees without their knowledge and naming the company as beneficiary. Another prominent user of these "dead peasant" insurance policies is, you guessed it, Enron. The difference between the Enron and Wal-Mart in this matter is that Enron didn't break Texas Law as did Wal-Mart. In Texas, it is illegal for any person or company to take out a life insurance policy on any other person without telling the person first. Wal-Mart chose to ignore Texas law when it took some 350,000 dead peasant policies on employees, including Texas employees, without telling them.

http://www.texassportfishing.com/editorial2.htm

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Yes, in an earlier post, I said I didn't think it could be done secretly, but after looking at some of the sources, obviously it can. So who should be culpable here? The companies buying the illegal policies? Or the insurance companies selling them?

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ebrown_p wrote:

watchmaker's

Life insurance policies make sense when a person's contribution to a company is worth more than the policy.

Like casinos, insurance companies hire statiticians to calculate the odds precisely on the policies they make in order to ensure that the insurance companies make a profit. They've been doing this their entire existance and they're very good at it.

Even the many accountants other corporations hire wouldn't be able to pull a fast one over the insurance companies to get a profit out of it. They can protect themselves with such a policy against the loss of a worker, yes. This is what insurance is for.

Yet the idea that corporations are somehow profiting off this "scheme" is simply ridiculous.

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Well in all due respect Watchmaker, how much financial impact on Wal-mart do you think a janitor or greeter or checker might have? And if the corporation takes out an insurance policy on an elderly janitor or greeter or checker and collects as beneficiary on that person's demise, you don't consider that profit to the corporation?

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squinney wrote:

In violation of Texas law, Wal-Mart has been taking out life insurance policies on its employees without their knowledge and naming the company as beneficiary. Another prominent user of these "dead peasant" insurance policies is, you guessed it, Enron. The difference between the Enron and Wal-Mart in this matter is that Enron didn't break Texas Law as did Wal-Mart. In Texas, it is illegal for any person or company to take out a life insurance policy on any other person without telling the person first. Wal-Mart chose to ignore Texas law when it took some 350,000 dead peasant policies on employees, including Texas employees, without telling them.

http://www.texassportfishing.com/editorial2.htm

The article does not say how much the policies were for. My guess would be that it would need to be in an amount that was relatively small (50K or less) and maybe sold under a "group" type program. In that way, it could be possible that the employee did not know. I would also guess that it would have been "cheap term" insurance whcih may not last for the employees lifetime.

I'm not justifying what Wal-Mart did, however.

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Interesting .... I wonder, if the same company had a K&R policy, would having life insurance policies on their employees directly conflict with how they would instruct their K&R carrier to handle negotiations? Not really a good incentive to rescue their staff, now is it?

I think if I were a contractor going to work for my company (let's say in Iraq, right now), I would want my company to have a very large K&R policy and NO life insurance policy on me.

As for ex-employees, I thought with all insurance policies there would be no claims paid unless there was an insurable interest at the time of loss. I'm no expert on personal insurance but I clearly thought that, especially with life insurance, if the employee doesn't work for the employer at the time of his/her death, then there can be no payout, otherwise this violates the principle of indemnity.

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Actually, I think that at one time it was a big Financial Accounting Standards Board whether it was indeed income to the corporation. Is the payoff from any life insurance considered to be income? Not sure, but I don't believe it is. Now, producing cash, without also recording income is a fairly strong incentive for insuring that Wal-Mart greeter, isn't it?

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roger wrote:

Actually, I think that at one time it was a big Financial Accounting Standards Board whether it was indeed income to the corporation. Is the payoff from any life insurance considered to be income? Not sure, but I don't believe it is. Now, producing cash, without also recording income is a fairly strong incentive for insuring that Wal-Mart greeter, isn't it?

Life Insurance proceeds are always received income tax free by the beneficiary. However, in the case of a Business, the proceeds could be subject to AMT.

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watchmakers guidedog wrote:

Like casinos, insurance companies hire statiticians to calculate the odds precisely on the policies they make in order to ensure that the insurance companies make a profit. They've been doing this their entire existance and they're very good at it.

Even the many accountants other corporations hire wouldn't be able to pull a fast one over the insurance companies to get a profit out of it. They can protect themselves with such a policy against the loss of a worker, yes. This is what insurance is for.

Yet the idea that corporations are somehow profiting off this "scheme" is simply ridiculous.

You are missing the whole point.

I understand that in aggregate, my insurance company will profit from the policies it sells and that statistically "the odds are in its favor." I also understand that the chance that I will collect on the life insurance policy I am paying for before I have paid more than the payout is low.

That is not the point. I am not saying that "corporatios are somehow profitting off this scheme". I am saying that life insurance is sometime worth it as a good way to decrease an unacceptable risk".

I buy life insurance because it will balance the risk to my family that my death entails. If I die, my family will be very hurt financially (as my family depends on my income).

Because of this, life insurance is worth it-- it decreases an unacceptable risk.

The same is true for companies who buy life insurance for their key employees. They are accepting that the insurance company will in whole make a profit at the cost of the policyholders. It is still a good decision because it reduces the risk of something very bad happening.

That's how insurance works-- for individuals or employers.

For the reasons that watchmaker says, buying insurance against janitors and cashiers is a bad business decisions. Insuring key employees, especially ones the corporation has an investment in, is a good business move.

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Agreed. But in secret? Without the employees' consent? I think that's a risky business move.

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I guess if I found out my wife took out a life insurance policy on me and didn't tell me about it, I might be a little worried....

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If my boss found out I took out a policy on him, he had darn well be worried too.

Hey, all expenses must be recovered. It's an axiom of buiness.

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Is there an easy way to find out if there are any life insurance policies on your self? Or would you pretty much have to call every insurance company and hope that they are being honest.

I'm pretty expendible in my employment, but if some companies are even insuring box boys than who knows.

It seems so crazy that there isn't a law that requires a signature or something. Congress needs to pull their heads out of their butts and start passing laws that will actually do us some good.

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I think I would be more offended if I found out that my company didn't have a life insurance policy against me.

Don't they know how indispensible I am?

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roverroad wrote:

Congress needs to pull their heads out of their butts and start passing laws that will actually do us some good.

Just be a little cautious on how that gets pushed though. As long as the company isn't hiding things this insurance can have some real benefits to the individual.

One of my previous employers took out a policy on every employee (equeal to the annual salary) and then the employee could add on coverage for up to 2 years salary for less than $3/month and name their own beneficary. It was the cheapest life insurance I've ever seen. If other companies offered that sort of thing to every employee no one would care about their cut in your demise.

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Ah, but fishin', that does sort of imply the employees were aware of the policy, and that's the issue, isn't it?

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Yes, I have no problem with the policy of the company insuring the employees so long as the employees are aware of it and consent to it. And if the company should give the employees opportunity to cash in on the deal too, so much the better.

I have a HUGE problem with anybody being able to secretly take out a life insurance policy on anybody though.

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Quote:

"Dead peasant" insurance - known in polite circles as corporate-owned life insurance, or "COLI" - is the practice of purchasing life insurance on a large group of rank-and-file employees. The plan tries to take advantage of the tax-free buildup of earnings in the policy by borrowing against the policy and deducting the interest. While the buildup and the interest expense nearly wash economically, the policy owner comes out ahead if the expense is deductible while the income is tax-free.

The 6th Circuit upheld a decision that such an arrangement by American Electric Power was a "sham" entered into only to produce tax benefits.

And you think your employer is going to give a damn about you if you're still breathing when the tax benefit point is reached?

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When used as a tax-evadin' revenue stream, as in Stilly's example, yeah, its reprehensible and clearly illegal. However, for an employer to insure against the unplanned disruption and expense which would accompany the recruitment, trainin', and assimilation of an individual as would be required by the unexpected demise of an experienced, productive employee is simple good business practice. Should the insured employee not die or become incapacitated to the point of bein' unable to fulfill the employee's job functions while in the active employ of the insurer, or should the employee become no longer employed by the insurer, whether through retirement or detachment from employment (whether initiated by employee or employer), the policy expires worthless. It ain't much different than me insurin' my tractor.

Of course, like just about anything else involvin' money, somebody's gonna find a way to abuse the idea - that's just flat-out guaranteed.

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Employers setting up secret life insurance policies on you.

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