Does your employer have "Dead Peasants" Insurance

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http://deadpeasantinsurance.com/

From the capitalistic point of view, this makes much better sense than providing employees with health insurance. Health insurance would cost more money. This way, the employer comes out ahead if you die. It is absolutely brilliant for business.

Here is a partial list of companies that bought insurance policies on the lives of their employees:

http://deadpeasantinsurance.com/which-e ... employees/

It appears to be a widespread practice.

Capitalism at its level best, eh?

No it doesn't. The entire idea of this policy is to reduce the losses a company has if it loses employees due to death. As it stands though, insurance only works BECAUSE the expected cost of the insurance policy is higher than the payout, so this kind of policy isn't a profit thing but rather a measure to reduce variability. After all, "the employer coming out ahead if you die" ignores the fact that they are unlikely to come out ahead if you leave or take your time to die. And also, given the story, it looks like the policies were also partially pursued out of an eye for tax benefits "the United States Court of Appeals for the Eleventh Circuit held that Winn-Dixie’s policies were a sham transaction for federal income tax purposes", so even then the issue doesn't seem to be exactly the same as what you are selling it as.

Not only that, but health insurance is supposed to be a measure to attract employees. It is just a substitute for wages.

In any case, I don't know what you are criticizing here, and I get this strange feeling that you aren't actually analyzing the matter so much as trying to get a rise with ill-conceived ideas.

yup...insurance companies don't make money on paying out, they make money not paying out...

Here is a short clip from Good Morning America:

[youtube]http://www.youtube.com/watch?v=-cLrXYmUurE[/youtube]

The companies get a tax write-off for taking life insurance policies against their employees. This is a perquisite that individual families don't receive. Plus, payouts from life insurance policies are tax free.

In the example in the clip above, the company cashed in even after the employee left.

The companies are doing something other than reducing variability, if they are taking out policies worth hundreds of thousands of dollars on minimum-wage employees, most of whom do not receive health insurance.

With a life insurance policy, a company would much rather see an employee die rather than resign or retire.

Well, yes, that's part of the issue. There are tax advantages, but I still can't see a real purpose to it, unless the company knows something that the insurance company does not know.


I was too lazy to listen to the clip. However, they really can't be making profits off of this. The reason is pretty simple: the insurance company also has to make profits off of this, and this is a zero-sum game. So, you are either going to have to claim that life-insurance people are failing to make money off of this insurance or that the company fails to make money off of this.


Well, ok, and the only issue I really see with this is perverse incentives. Otherwise this is just a form of betting.

The tax advantages could make the difference, and could potentially make it statistically sound for both the insured company and the insurer, with the right pricing to payout.

Unless these are subsidies then it couldn't. If we just hold to insurance as an expense and therefore a reduction on taxes that way, I don't see how profit could emerge.

As it stands, the way insurance works is roughly like this:
(average summation of payments > total payout)

The issue is that if the total payout < summation of payments, then anybody would be better off with the summation of payments rather than the payout.

http://en.wikipedia.org/wiki/Corporate- ... _insurance

Apparently it ends up being profitable for companies to take out life insurance on even the lowliest of employees.

A company lowers its taxable income by the amount of the insurance, and gets a big tax-free payout every time someone dies.

In addition to deducting the cost of the insurance, companies can borrow against the cash value of the insurance, and the interest that the companies pay back is also deductible.

If it wasn't profitable for companies to take out life insurance on their employees, then the practice wouldn't be so widespread.

I feel dumb, I get Obres' point now.

Ok, so lets say that taxes are 40%. Let's say that life insurance returns 80% of what is paid-in. Finally, let's say that life-insurance pay-outs are not taxed. In this case, it is better to buy life insurance than have cash floating around. The reason being that life insurance is a tax shelter.

So, really, the issue isn't a matter of life insurance being a money-maker, which was my mistake, but rather life-insurance is a tax shelter that companies have figured out ways to use.

But yeah, your article, Pandabear, actually says what I originally said: "The entire idea of this policy is to reduce the losses a company has if it loses employees due to death. As it stands though, insurance only works BECAUSE the expected cost of the insurance policy is higher than the payout, so this kind of policy isn't a profit thing but rather a measure to reduce variability."-me "COLI was originally purchased on the lives of key employees and executives by a company to hedge against the financial cost of losing key employees to unexpected death, the risk of recruiting and training replacements of necessary or highly-trained personnel, or to fund corporate obligations to redeem stock upon the death of an owner. This use is commonly known as "key man" or "key person" insurance."-wiki

You and the article agree on the original purpose for the insurance. Now, it is a tax shelter, with big tax-free payouts when someone dies.

Tax shelters are also money-makers.

I checked "no", because I'm self employed. But then I realized I actually have a life insurance policy, so I should have checked "yes"!

Cutting losses and making money are different things. Firing employees isn't a money-maker, it is a cost-cutter, after all, you can only fire employees to get a higher amount of the gross income. The same is true for tax sheltering.

But, arranging for employees to die, so that you can cash in on the life insurance, is a sure money-maker.

The employer has an incentive to seek out the cheapest health insurance from the company that does the best at weaseling out of providing coverage for deadly illnesses.

The employees really won't know the difference, until they need the health insurance.

Then, SURPRISE!

The company wins big.

The employer already has some incentive to seek the cheapest health insurance.

Additionally, arranging for employees to die leaves the company up to extraordinary financial risk. Y'know the whole Pinto fiasco? This would be a lot worse. Especially given that the life insurance company has a real incentive to screw this company over if they act to jump up the claims to any extent. In any case, arranging the deaths of employees requires a lot of coordination to act against the law that could not be reasonably done. Companies are better off with straight-up accounting fraud given those circumstances.

And to to think that if I were to murder the scum playing such a trick on me, I'd be the one who goes to prison. I wonder what would happen if someone murdered someone who played this "dead peasant" trick - is there really a chance of jury nullification?