(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.