1 Oct
When Companies Get Really Creepy: ‘Dead Peasant’ Life Insurance
Posted in dumb corporations by Roger 7 Comments(NOTE: A rather detailed and well-thought out response to this article and defense of the practice of Corporate Owned Life Insurance (COLI, which I and other commentators have referred to as ‘Dead Peasant Insurance’) is posted below. Also posted are the responses I’ve given to Mr. Kramer, who by all appearances seems to have a pretty good handle on the situation, and the resulting discussion between us. Please, if you read through this article, continue down to the comments so that you can get the whole and complete picture about COLI policies, as this initial article is just the tip of the iceberg. I’m leaving the initial article as is, so that the comments and corrections discussed below continue to make sense, although my position and understanding of these policies have changed significantly since I first wrote this article.)
I like to think of myself as pretty jaded, particularly when it comes to big business. I’ve read about the horrors of coal mining and factories in turn of the (20th) century America, as well as sweatshops and slave labor used around the world even today. It takes something truly disturbing for me to question just vile is human nature, or at least, the nature of large corporations (who are usually considered ‘persons deserving of protection’ by the legal system, anyway). (Kudos to Green Panda for bringing this to my attention.)
Well, today happens to be a good day to be disturbed, I suppose. It turns out that there are some corporations that actually take out life insurance on some of their employees. Sounds pretty good, right? Well, the twist is that rather than having the beneficiary being the relatives of the deceased, the beneficiary is the corporation itself. That’s right, in a practice called ‘Dead Peasant Insurance‘ (which in and of itself should send up some ethical red flags to anyone with a functioning moral compass), your company is able to take out a life insurance policy on you, paying the premiums and collecting the payout when you die.
In case you are a member of an alien race who is unfamiliar with Earthling customs and morals, or a major executive suffering from the same deficit, allow me to explain just a few of the reasons why this is wrong:
1) It’s Bad Form to Profit Off of Someone Else’s Death – There are very few remaining rules of morality on which virtually everyone can agree, but one of those is that making a buck off the death of someone you know is not a good thing. At best, you’ll be seen as somewhat creepy and less than desirable to be around (a mortician); at worst, you’ll be a criminal that nobody has a problem throwing into jail (hit man, assassin). In either event, don’t be surprised if everyone takes a few steps away from you at the next party you attend.
2) It Creates a Conflict of Interest for the Company – Now, I’m not saying that corporate executives, rather than firing their worst performing workers, will start to insure them and make sure that said workers meet with unfortunate ‘accidents’ in order to collect the bounty life insurance payout. (Although, that would make an interesting movie plot line.) But, in a budget conscious environment, it could lead to some companies taking a good, long look at whether they really want to provide employees with so much ‘health insurance’ and ‘preventative care’ when the alternative could be so lucrative.
3) The Company Can Keep the Policy in Force After You Leave - As odd as this arrangement may seem, you might (I stress, might) be able to justify it as a legitimate business practice; if an employee dies, even someone on the bottom of the corporate food chain, it still negatively impacts the company’s bottom line. Getting some pay off, to cover the expenses of finding and training someone new might not seem so wrong through such a lens. That is, until you realize that the company could keep the policies in place even after the employees had left, thus allowing them to profit from the death of someone who has long since gone from their employ. (So much for justification.)
4) It Was Done Behind the Employee’s Back - The icing on the cake: the employee may have an insurance policy with a corporate beneficiary without even knowing it. All of which makes the previous problems even more aggravated: not only can the employees have a price on their head (so to speak) even after they leave the company’s employ, but they might not even know about it. Luckily, this is now against the law, but you can see what made this especially galling to many of the employees’ families when they found out. (Unless you are an alien or corporate executive, in which case: yes, normal people don’t like having important facts involving them to be hidden from them.)
5) Did I Mention the ‘Profiting Off Someone’s Death’ Thing? - I did? Well, it deserves repeating: the companies that had these policies were hoping to turn a profit off the death of their employees. If the phrase ‘Dead Peasant Insurance’ doesn’t stir up some disturbing thoughts, then nothing else on this list is likely to convince you of how this policy is disturbing.
I could go on, but I think the point is clear: this isn’t the most ethical policy in the world. So, if you happen to be an executive at a company who uses ‘Dead Peasant’ policies, whether as an investment or protection against problems if they die, what should you do to come off as less creepy? First, come up with a name better than ‘Dead Peasant’ to describe this practice; if you don’t want to be seen as the malevolent dictator of your corporate fiefdom, it’s best to avoid any references to the feudal system. Plus, the word ‘Dead’ doesn’t conjure up many pleasant images either. If it’s called something like ‘Supporting Employee’s Security Insurance’, it would still be creepy, but would sound a bit less disturbing.
Second, make sure to disclose any of these policies to the employees in question, and allow them to opt out (or better yet, force them to opt in) if they find it too distasteful or filled with conflicts of interest. Since this is the law anyway, it shouldn’t be terribly hard to do so. Third, end the policy when the employees leave; at that point, you lose whatever justification you have to ensure the (ex-)employee in question (besides the old stand by, ‘it’s a way to make money’) and it goes from mildly creepy to ‘why should my old job make money when I die?’ full-on disturbing in nature.
Follow these rules and your corporation will go from being really disturbing to mildly distasteful, which is about the best for which you can hope if you make widespread use of these types of life insurance plans.
Related Websites
Lawrence Kramer
on November 24 2009
Let’s go through your 5 points.
0. It’s not called “dead peasant insurance” by anyone in the industry. It’s called that by Atty. Mike Myers and others who accept his misnomer. A hostile lawyer’s error should raise ethical issues about the lawyer, but not about the product.
1 Almost all major COLI programs were “experience rated,” which means, simply, that whatever a company got in policy proceeds it had to pay as premiums in subsequent years. That’s one of the reasons the plans came a cropper for tax purposes. The court found that there was no there there.
2. No net gain from deaths means no conflict of interest for employers. On the contrary, only living insureds provided the tax benefits – so the employer’s interest was in prolonging life, not shortening it. But you’re right about the movie plot – CSI Miami did it last night.
3. Since the employer profited from the ongoing policies and not from the death proceeds, the fact that the policy continued after employment doesn’t matter. But you – and Mr. Myers – might be interested to learn that the term “dead peasants” referred to these former employees, not to the deceased insureds. The reference was to a Gogol novel (Dead Souls), which had something to do with a census in which dead bodies could be counted. It struck us that getting a tax break by insuring former employees was something like getting one for buying dead peasants.
4. Most COlI plans were disclosed to employees and consent obtained. Whether that was true in any given case I can’t say. But, since we have disposed of the claim that the insurer benefited from deaths, the icing is on a non-existing cake. Very zen, this compounding of a non-event.
5. Number one would certainly bear repeating if it were true. Given the actual state of affairs, however, maybe not so much.
(Yes, I’m the guy to whom Myers attributes the “dead peasants” term, so I have some acquaintance with the matter.)
Roger
on November 24 2009
Mr. Kramer,
It’s good to see such a vigorous and lively response to something I wrote, particularly so long after I had even forgotten that I mentioned it. You make some very good points, and I’ll be the first to admit, I didn’t do a tremendous amount of research in attempting to find the corporations’ perspective on how and why such policies exist. I am currently attempting to redo my research, and I think I can respond to many of the points you’ve made here:
0. You’ll forgive me using a common term which has been mentioned by everyone from Liz Weston: http://moneycentral.msn.com/content/Insurance/P64954.asp to ABC news: http://abcnews.go.com/GMA/dead-peasant-life-insurance-policies-fair/story?id=8724327&page=1 Not being a corporate lawyer or someone involved in the insurance industry, I used the most common, descriptive term I found in the course of my research. As for Mr. Myers, having not encountered him in my research before writing this, I didn’t think to include anything about him, hostile or not, in the blog entry itself.
1. I can see, with a bit more research, that there are non-sinister reasons that companies might use these, let’s call them ‘janitors’ policies’, to use another common nickname. Still, using rules regarding life insurance as a ‘cropper’ for tax purposes still combines two things that many Americans hate most about corporations: their attempts to dodge taxes by any means possible, and their treatment of employees as cogs in a system rather than individuals. The whole situation still comes off as pretty bad form, albeit for different reasons.
2. That’s a fair point, although it does bring us back to the whole ‘employees were used more like tax-deferred saving accounts than like people’ concept.
3. Again, I concede to the logic of your point; although I’d hope you’d allow that to an outside observer who knows little about corporate tax policy (i.e., someone like me), it looks like the company is trying to make a buck off the eventual death of a former employee. (A perception that is only reinforced by being the interpretation of many of sources I read, including those already cited.) Frankly, as mentioned in my initial number three point, this might be much more of a non-issue if the policies in fact were being used to protect the company from economic harm from the loss of an employee. (Also, I’ll be honest, that’s a pretty creepy story of how the policies got their disreputable nickname.)
4. Fair enough. I haven’t seen any statistics regarding how many of these policies were issued with the consent of those being insured vs. the number that were uninformed, so I’ll take your word that most people were informed of the situation. (Although, I’m actually pretty curious as to what the numbers actually are, if you know where I could find such information.) In addition, since this practice of insuring someone without their knowledge and consent has been illegal since 2006, it’s something of a moot point now, anyway. That said, even if only a relatively small portion of the policies were obtained without the employees’ consent (whether due to a corporate policy or simple human error), it does give the whole concept a bit of a black eye.
5. Again, freely conceded as a misunderstanding of the true purpose of these policies on my part, although as noted in my revised number one, I’m not sure the correct interpretation paints the companies that use such policies in a much better light.
I am appreciative that you decided to grace my humble little blog with your presence, even if only to correct me. I hope that if write more on this policy or other insurance related matters in the future, that you’ll share any critiques you have that I can attempt to provide the most accurate information possible.
Lawrence Kramer
on December 21 2009
Roger -
It’s interesting to me to watch how bloggers react to my posts on this subject. I would give you a B- on the curve of responses I have seen. You recognize that you overstated the case, but you are clinging to annoyance where outrage no longer works. Let me be specific:
0. This stuff has come to be called “Dead Peasants Insurance” because someone thought it would arouse the taorch and pitchfork crowd. If that’s all you need to use it, too, carry on.
1 I’m sure peope hate corporations for trying to dodge taxes, but can you think of a more competitive industry than groceries or discount retail? Do you really think that Walmart somehow planned to pocket the tax advantage it sought to get from Janitor COLI? Or, as is more likely considering its business model, do you suppose they planned to use it to reduce prices and win market share? Not all tax schemes benefit anyone other than the schemer (or his lawyers, accountants, and insurance agents), but Walmart and Winn-Dixie most likely planned to share their gains, however indirectly, with their customers in order to get more of them. I’m not saying it’s a fair advantage or good for the public fisc, just that it is what it is.
As for treating employees as cogs in a machine, nothing about janitor COLI supports the “more than” language in your claim. A better phrase would have been “to some extent,” which is no big deal, really.
2. See 1.
3. I fully allow that this stuff looks pretty bad to the uninitiated. My question is why you leapt before you looked. I suspect it had something to do with your pre-existing low opinion of the people you’d be saying untrue things about. It all boils down to our innate sense that any stick is good enough to beat a dog.
4. I don’t know how many companies got consent, nor do I believe that even people who gave consent knew what they were consenting to. But I start with the “no harm” position of experience rating, so I don’t really care whether consent was obtained or not. This is the hardest thing to get your brain around: because of the tax aspects of these plans, only survival produced benefits for the company. All of the incentives were PRO-EMPLOYEE. Still, given how complicated this stuff is, and how quiok demagogues like Moore would be to misdescribe it, maybe you’ll forgive companies for not running the good news up the flagpole. (The only reason companies gave a benefit to employees when they died was to assure that the company would be advised when the death occurred. Otherwise, the company would be claiming tax benefits on policies that had actually matured. Now THAT would be pure Gogol.)
5. I can’t guess how upset about Janitor COLI you are under the facts as I’ve described them. I don’t think the tax schemes is defensible either, but would you really have posted at all if you believed what I’ve written?
Lawrence Kramer´s last blog ..C-CSPAN and the Law of Unintended Consequences
Roger
on December 21 2009
Mr. Kramer,
It’s also been quite interesting from my end to have such a detailed and thoughtful response to one of my posts; you’ve clearly put as much, if not significantly more, insight and perspective into your comments than I’ve seen in any other response on this blog, and for that matter, on most personal blogs period. I’m glad my responses met the level of B-, although being an A student through high school and college, I certainly feel I should and can do better. So, as best I can, I shall clear my mind of my past prejudices, and attempt to address your latest points:
0l. Once again, my initial research (which again, I’ll admit as being more focused on opponents of these policies than defenders) was the source of the name. I’ve added something of a disclaimer to the beginning of the post, using the proper name (Corporate Owned Life Insurance) and entreating people to view this discussion currently evolving in order to get a more complete picture of these policies. Short of rewriting the entry (which would have the unfortunate side effect of rendering this discussion almost nonsensical), I’m not sure what more to do to show my increased understanding of the situation.
1. I’ll admit, I know little about the grocery and discount retail industries, which seem to be rather competitive and bottom line oriented. I’ll also agree that it was unlikely that the proceeds from these policies were going to pad the CEO’s wallet without any of the shareholders, employees, or customers benefiting at all. From reading your comments and expanding my own research, it does seem to be a fairly innocuous, if somewhat morbid sounding, method of working with tax laws as written. As for how fair it is, well, that’s an argument for a whole different day, since this one is already getting rather long.
2. Conceded as a bad turn of phrase on my part.
3. To be fair, I DID look; however, I clearly didn’t do the required due diligence into all sides of the issue that something as complex this required. In the future, I shall endeavor to get all sides of an issue, although when I’m not even sure there IS another side (as you noted, the companies with these plans weren’t exactly running full page ads touting their advantages to both the companies and employees), it will be pretty hard.
4. Fair enough; I doubted that the statistics would be generally available, and as you say, that doesn’t ensure that everyone who gave consent really understood it, either. I’ll also admit the concept that the policies are pro-employee, while obvious after reading everything you’ve written, would have completely bewildered me if I had come across it during my initial research (at least, not without a great deal of evidence to back up the claim). Well, at least this page will serve as some indicator of the true purpose of such plans, I suppose.
5. After gaining a more complete and well rounded view of these plans, I can see that what worries I had were overblown at best, and completely unfounded at worst. I do thank you for all your comments, and hopefully anyone out there doing research on such plans will also benefit from your comments.
Lawrence Kramer
on December 21 2009
Roger -
I’m happy to have given the blog some action. My own blog has attracted virtually no comment, so I know the feeling of shouting out into the wilderness and getting little or nothing of substance back.
Have a good holiday and best of luck.
LJK
Lawrence Kramer´s last blog ..C-CSPAN and the Law of Unintended Consequences
Roger
on December 22 2009
Well, you certainly gave this blog some action, and you gave my analytical mind quite a work out, as well. I’ll have to be sure to visit your blog, as my short perusal seems to indicate some interesting commentary. Keep it up, even if it feels like you’re screaming in the wilderness and getting no response.
John wallace
on August 22 2010
This is an important comment:The problem is that the policies have 4 names and that companies with extremely dangerous occupations for rank and file are on board whole heartedly.Case in point-Norfolk and southern railroad has publicly admitted they carry these policies.Between 1993 and 2002 the government agency that counts fatality statistics per 100,000 employees said that the rairoad incurred on average 135 deaths per year as an industry.If they were insured by basic,standard methods they would have been listed as the most dangerous job in the world.Even more dangerous than alaskan fisherman but instead they are self insured (like many railroad and mining companies) and they are never listed.To blur the subject even more their statistics are combined with trucking fatalities and the amounts of people counted increases one thousand fold.Now you must take in to consideration that they are insuring rank and file employees that they put in harms way for millions of dollars in life insurance for the company and the evil of it is self evident.Make no mistake,lower level managers get a bonus once the deceaseds family signs an agreement for an out of court settlement of one hundred thousand.Then endures the outrage of finding out they have to pay back the medical insurance company one hundred and ten thousand because of settling without a lawyer.So lets go through this,-coli,boli,or dead peasant insurance.Employee dead because of corporate safety negligence,Family ends up owe’n the insurance company ten thousand,the weasel manager gets a fifty thousand dollar bonus,The corporation involved in causing the employees death profits nine hundred and fifty thousand dollars.Source-Norfolk and southern transportation. On a personal note this is the most unamerican unethical and unjustifiable stuff i have ever heard of.I am DISGUSTED.