"Life insurance is traditionally used to guard against the death of breadwinners. This is an investment scheme."
Paul Smith, a loyal Wal-Mart employee for 18 years, should have been relieved to discover his company took out a life insurance policy on his wife, Ladonna. After working there for 18 months as a cake decorator, she passed away following an asthma attack.
Ladonna left behind a husband and two young kids, along with more than $100,000 worth of medical bills and a $6,000 funeral.
How much of the life insurance policy did her family receive? Not a single dime. Wal-Mart, one of the richest companies in the world, earned an extra $81,000.
Reality reveals that employees are worth more dead than alive to their companies. More than 200 known companies take out Corporate-Owned Life Insurance (COLI) policies on their employees. Originally started in the 1980s, this scheme to make an extra buck by large and small companies became known as 'Dead Peasant' policies.
Prior to corporate greed discovering the policies, they were originally only taken out on executive level employees that would be very difficult to replace. It would take time and money to replace someone so high up in the company.
However, companies soon realized they could do the same with lower level employees without their consent. So when the insured employee dies, the company files an insurance claim and gets a big payout based on the insurance policy value.
And best of all, the insurance benefits to the company are tax free.
In most cases, the family was unaware of such unethical behavior by their company until the death of their loved one.
How could this possibly be legal? Well, it is.
Prior to 2006, there were no federal laws that forced employers to disclose these insurance policies to their employees. The only way they could've found out was through an employer's voluntary disclosure. Most companies hid it in the fine print or simply ignored state laws that attempted to prohibit this activity.
This scheme caught more attention as big companies like Wal-mart, Nestle and Winn Dixie were taken to court. Forcing Congress to take action, they created minimum consent requirements for employers.
As of 2006, 1 out of every 5 insurance policies was a COLI. Over a 5 year time span, companies expect to receive more than $9 billion in tax breaks from these policies. Wal-Mart alone took out more than 350,000 COLI policies between 1993 and 1996. Nestle had policies on 18,000 workers as of 2002 and Enron had $500 million worth of policies on workers.
Without action from Congress, companies will continue to profit off their employees' deaths.
It comes down to an ethics question; Is it appropriate for companies to be partaking in such a practice involving their own employees' lives? Is it right for big companies like Wal-Mart to make millions of extra dollars every year, thanks to their employee's death?
For the full list of known companies that have been discovered taking COLI policies on their employees, here is the link.
Capitalism: A Love Story. Dir. Michael Moore. Perf. Michael Moore. Paramount, 2009. Film.
Fabio, Michelle. "Can Your Employer Make Money on Your Death?" LegalZoom: Online Legal Document Services: LLC, Wills, Incorporation, Divorce & More. N.p., Sept. 2010. Web. 19 Nov. 2013. http://www.legalzoom.com/legal-headlines/corporate-lawsuits/can-your-employer-make-money.
Myers, Mike. "What Is "Dead Peasant" Insurance?" Dead Peasants Insurance FAQ. N.p., n.d. Web. 19 Nov. 2013. http://deadpeasantinsurance.com/.
Stone, Ralph E. "Dead Peasants Insurance Policies." Fog City Journal. N.p., 3 Oct. 2009. Web. 19 Nov. 2013. http://www.fogcityjournal.com/wordpress/1459/dead-peasants-insurance-policies/.