Saturday, October 10, 2009

Dead Peasants Insurance Policies

dead peasants insurance

I learned about a new low in corporate greed from Michael Moore’s latest documentary “Capitalism: A Love Story,” which, by the way, I highly recommend. It is called “dead peasant” insurance. Companies take out secret insurance policies on their employees and name themselves as beneficiaries. And we are not talking about key employees since losing their expertise, knowledge and contacts of top managers can be financially devastating for companies. Rather, companies also write policies for rank-and-file employees. When the employee dies, the company, not his or her family, gets the insurance money. In Moore’s movie, Wal-Mart took out a secret policy on a cake decorator, and when she died, Wal-Mart received $80,000, but her family received nothing but medical bills and funeral costs.

I cannot take out an insurance policy on my neighbor’s life with me as the beneficiary because I have no insurable interest in his life. That would be an invitation for me, if I was that kind of guy, to bump him off. Insurance is largely regulated by the individual states and, in the 1980s, many states permitted these type of insurance policies. Congress over the years has tried to crack down on the practice, but the insurance industry so far has managed to derail reforms.

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. Companies pay $8 billion in premiums each year for such coverage. The policies make up more than 20% of the all the life insurance sold each year and 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. Therefore, companies can borrow against the policies. And the death benefits are tax-free.

No one knows how many corporate-owned policies are issued on executives versus rank-and-file workers. Wal-Mart alone had taken out about 350,000 such policies between 1993 and 1996. Nestle USA had policies on 18,000 workers in 2002. Enron had $500 million in policies on workers.

Congress should ban the practice for rank-and-file employees or at the very minimum require companies to obtain employees’ permission for the policies.