For Xain, dead peasants insurance info you asked about in wal-mart thread

[e-brake]

Right now, your company could have a life insurance policy on you that you know nothing about. When you die -- perhaps years after you leave your employer -- the tax-free proceeds from this policy wouldnt go to your family. The money would go to the company.

Whats more, the company might use this policy to pay for retirement benefits and other perks not for you or your fellow workers, but for your companys top executives.

Sound outrageous? Such corporate-owned life insurance is also big business:

• Companies pay a whopping $8 billion in premiums each year for such coverage, according to the American Council of Life Insurers, a trade group.
• The policies make up more than 20% of the all the life insurance sold each year.
• 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. So, companies can borrow against the policies (though the IRS won't let them write off the interest). And the death benefits are tax-free.

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.

These policies, nicknamed dead janitors or dead peasants insurance, soared in popularity after many states cleared the way for them in the 1980s. Congress recently tried to crack down on the practice, to the howls of the insurance industry -- which earlier this year managed to derail reforms.

The policies have generated lawsuits by survivors who got little or nothing when insured workers died. A couple of examples:

• Jane St. John had two children and was pregnant with a third when her husband, a butcher at a Winn-Dixie store, was killed in an auto accident. When the Killeen, Texas, woman called the company to ask about insurance, she said she was told about a $17,500 policy to which she was entitled. St. John said Winn-Dixie told her nothing about the $102,000 the company collected from a corporate-owned policy on his life. She found out about it this summer, eight years after his death, from a lawyer who researched court records. The idea that the company would secretly insure lives, and then not share the benefits with the families, "is sick," she said. "That is creepy."
  
  Mike Rice was a 48-year-old assistant manager when he died of a massive heart attack at the Wal-Mart store in Tilton, N.H. His widow, Vicki, became the lead plaintiff in a class-action lawsuit against the company after she discovered Wal-Mart collected $300,000 from a life insurance policy it owned on him. Vicki Rice believes job-related stress contributed to the heart attack and says it is totally immoral for Wal-Mart to profit from his death.

In a lot of circumstances, the families dont get anything, said attorney Mike Myers of Houstons McClanahan & Clearman, which represents survivors suing companies over corporate-owned policies. The company tries its hardest to keep the policy a secret.

Labor leaders and some lawmakers have denounced the policies as unjust and repulsive. The companies say profits from the policies can help offset the increased cost of employee benefits and enhance the businesses bottom lines.

Corporate-owned life insurance actually comes in two flavors:

• Executive or key person policies that insure the lives of top executives. This coverage has been around for decades and has a clear business purpose, since losing the expertise, knowledge and contacts of top managers can be financially devastating for companies.
  
  Broad-based or janitors policies that insure rank-and-file workers. Here the purpose is basically profit. The life insurance proceeds are tax-free. The policies have an investment component that allows companies to earn tax-deferred returns while the employee is still alive. And, of course, companies can take out tax-free loans on the policies. All these gains and income are used to fund operations, pay for executive compensation or boost other benefits.

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, The Wall Street Journal reported. Enron had $500 million in policies on workers.

Sales of the policies came to a virtual standstill in September 2003, according to the insurer trade group ACLI, when the Senate Finance Committee approved legislation that would have taxed payouts made to companies if the employee had left more than a year earlier. That indicates that most policies arent being sold to protect companies financially against the loss of key current employees.

Strong insurance industry protests led the powerful committee to reconsider its action. Further work on the issue has been postponed until 2004, and indications are that the senators are softening on the idea of greatly restricting the policies, said Jack Dolan, ACLI spokesman.

Companies insist that janitors policies have a legitimate business function, but the IRS has been cracking down, arguing that many of the arrangements are nothing more than tax shelters. The agency has been particularly harsh on once-popular leveraged policies, in which policy loans were used to pay premiums. In the mid-1990s, the tax agency began disallowing billions of dollars in interest payment deductions the companies had been taking on such loans. Companies efforts to defend their programs have been largely unsuccessful; a U.S. Tax Court judge called Winn-Dixies program a sham, saying it lacked economic substance and business purpose.

The controversy helped convince Walt Disney and Wal-Mart, among others, to drop the policies. Winn-Dixie battled the IRS in court, but the supermarket chain recently lost its final round when the Supreme Court refused to review a lower court decision that backed the IRS.

So far, one company has prevailed against the IRS -- Dow Chemical, which took out the policies on more than 21,000 workers. A U.S. District Court in the Eastern District of Michigan ordered the IRS to return $22.2 million plus interest to the company. The IRS has appealed the ruling.

Survivors lawsuits, meanwhile, typically focus on two issues:

• Whether the companies had an insurable interest in their employees lives.
• Whether the companies were required to get the employees permission for the policies.

Insurable interest is usually a big deal for insurers. They want to make sure whoever is buying life insurance doesnt have an incentive for bumping off the insured. Insurers usually require purchasers have a strong familial or emotional connection to the people being insured, or that they would suffer significant financial losses if the insured people died.

(Its that latter standard that was loosened in the 1980s, making it easier for companies to buy policies for all their employees, not just key executives.)

Most states also have advise and consent laws that technically require companies to get workers permission before buying life insurance on them. But attorney Myers said many businesses circumvent these laws by purchasing the insurance in one of the states that doesnt require notice or consent, including Delaware, Georgia, New Jersey, North Carolina, Pennsylvania and Vermont.

"Executives fly to Atlanta to meet with the insurance company and its brokers, sign some papers, get on their respective corporate jets and fly home, Myers said.

Other companies offered their workers small policies -- typically $5,000 to $10,000 -- as an incentive to allow larger corporate-owned policies to be issued on the workers lives. The small policies can later be canceled, even if the company keeps up the premiums on the other insurance.

Anger about these practices likely will keep the heat on Congress to make some reforms. Its possible that lawmakers will restrict severely companies ability to write the policies on rank-and-file workers. At the very least, companies probably will have to get workers consent before buying any new policies and clearly disclose that the coverage may extend past the time they leave the company, the ACLIs Dolan said.

But he rejected the idea that corporate-owned life insurance was immoral or a company bet against its workers.

Its an important business planning tool, Dolan said. Companies are using it for extremely valid reasons.

http://moneycentral.msn.com/content/...nce/p64954.asp

[PETA]

dead peasants - lol

If you look back I said don't bother I was willing to accept the facts as true.

Thanks though.

[MC Twinkie]

You can take a life insurance policy out on anyone that you want. I could take one out on a complete stranger and when he dies I'm not obligated to give the money to anyone. I see nothing immoral in this practice. I just don't understand how they make money at it. It has to be the tax free part or something.

[PETA]

You can take a life insurance policy out on anyone that you want. I could take one out on a complete stranger and when he dies I'm not obligated to give the money to anyone. I see nothing immoral in this practice. I just don't understand how they make money at it. It has to be the tax free part or something.

Wrong. You need an insurable interest.

http://law.freeadvice.com/insurance_..._interests.htm

A person has an "insurable interest" in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. For example, if the house you own is damaged by fire, the value of your house has been reduced, and whether you pay to have the house rebuilt or sell it at a reduced price, you have suffered a financial loss resulting from the fire. By contrast, if your neighbor's house, which you do not own, is damaged by fire, you may feel sympathy for your neighbor and you may be emotionally upset, but you have not suffered a financial loss from the fire. You have an insurable interest in your own house, but in this example you do not have an insurable interest in your neighbor's house.

A basic requirement for all types of insurance is the person who buys a policy must have an insurable interest in the subject of the insurance. You have an insurable interest in any property you own or which is in your possession.

For purposes of life insurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouses and dependents. For property and casualty insurance, the insurable interest must exist both at the time the insurance is purchased and at the time a loss occurs. For life insurance, the insurable interest only needs to exist at the time the policy is purchased.

regarding benficiaries, if you have an insurable interest and you pay for the policy you can name whomever you wish as a beneficiary(ies)

[hepkatmama]

very good read. thank you.

interesting that these are the same companies that scoff at pensions or fully subsidized employee medical insurance, but they have plenty of money to set up a life insurance policy on a rank & file.

sure its ethical to insure an executive or someone with proprietary knowledge that will be tough to replace or retrain... but a janitor? a clerk? that is just setting up a windfall and almost hoping their health or lifestyle brings them an early demise.

so i guess its only immoral if the company takes life insurance but no medical insurance on an employee imho. that would be like fixing the game.

[BrandonWhat]

Christfuck, that was bloody depressing. And speaking of Christfucking, Xian, where do you stand towards this ethically? You seem like a good guy, I'm just curious if or how you would question any opposition to this.

[BHAZ]

in order to have a key person insurance policy you need to have an insurable interest in that person. meaning that if you died you would cause financial harm to the company in some way, such having unique skills that are not easily found in others, or key knowledge of the business and your company will suffer without you. but in order to have an key person insurance policy both an officer from the company and you have to sign the application, and chances are you will have to take a physical.

the chances of someone having a life insurance policy with out you knowing about it are very slim, and illegal.

[PETA]

Christfuck, that was bloody depressing. And speaking of Christfucking, Xian, where do you stand towards this ethically? You seem like a good guy, I'm just curious if or how you would question any opposition to this.

With regard to Wal*Mart I'd already made a comment in the previous thread (the one that evoked this one) that Wal*Mart was behaving shamelessly. With regard to ERs taking out life insurance policies on EEs I'd say it depends. For example, the death of a janitor is not likely to impact a company's bottom line. However, the death of say an expert in securitized trusts and their bond markets could well cost the ER a ton of dough. The notion of "insurable interest" exists to prevent unethical insuruing practices. Defining "insurable interest" is a matter for each state to decide. I cannot give you a clear cut bright line definition but I can say that the two examples I gave would be on opposite ends of a spectrum. EEs falling outside those margins are clearly cut in or out but where the cut off in the middle is would be subject to debate.

[hepkatmama]

Wal*Mart™ was behaving shamelessly.

if i quoted living people, that would be sig material right there.

[PETA]

I am very much alive... merely fictional