Posted in: Business

Corporations Using Life Insurance To Profit From Worker Deaths

Corporations are taking out life insurance policies on workers in an effort to fatten balance sheets

Corporations in America are well known for taking every avenue towards profitability, but a little known practice in which companies take out life insurance policies on workers and profit from their deaths is raising questions of morality in business circles.

As The New York Times’ Dealbook reports, an incident that took place at The Orange County Register earlier this year highlights the shady practice. Employees received an email from Freedom Communications, which owns the paper, requesting their consent for the company to take out life insurance policies on them. The beneficiaries would not be the workers themselves, however, but the Freedom Communications pension plan, a fact that left many at the company uncomfortable, to say the least.

While the practice is largely unknown to the general public, it is also widely common in corporate America. Hundreds of corporations have taken out so-called “dead peasant” life insurance policies on thousands of employees, due largely to the fact that company-owned life insurance offers generous tax breaks to employers. Despite legislation enacted in 2006 to restrict company-owned life insurance, the practice still remains widespread, as CBS News reports. Amazingly, prior to the 2006 laws, corporations were not required to even get consent from employees before taking out a life insurance policy on them.

According to Kushner, company owned life insurance is "not ghoulish."

Kushner defends the practice of company-owned life insurance, saying it “is not ghoulish.”

Critics of the practice, which results in nearly $1 billion in new corporate owned policies each year, say that it is vastly immoral for companies to profit in any way from worker’s deaths. Michael D. Myers, a Houston lawyer who has brought class-action lawsuits against corporations with such policies, points out that companies “are holding this humongous amount of coverage on the lives of human beings.”

Freedom Communications’ chief executive, Aaron Kushner, defended the practice, saying that “life insurance is one of the ways of strengthening the long-term health of the pension plan and ensuring its ability to pay benefits.” Since corporations can quickly recover the cash surrender value of life insurance policies, they are considered Tier 1 Capital, a basic measure of a bank’s fiscal strength. Life Insurance policies held by Wells Fargo and Bank of America have cash surrender values that top $10 billion each, and the gains from such investments are far outpacing any benefits paid out.

With corporate profits hitting record highs and wages falling, as The Inquisitr has previously reported, there seems to be little limit on methods companies will use to increase profitability. Company-owned life insurance, which grew out of the idea of protecting corporations from the loss of key people, is now ubiquitous, despite government intervention to curtail the practice.

“Life insurance is not ghoulish, nor are the people who sell it, nor are those who buy it,” Kushner wrote, defending the Freedom Communications plan. “Life insurance, by its very nature, was created to benefit the people we love and care about most,” he added, though whether workers count their corporations as loved ones is open for debate.

[Images via Money Crashers and Dealbook]

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