Does Your Employer Have a Life Insurance Policy Out on You?
Generally, when people take out life insurance policies, it’s because they want to protect the people who depend on them financially. It’s a tough situation to imagine, but if the breadwinner in a family dies, dependents could face a serious cash crisis. That’s why securing life insurance is so important when your loved ones heavily depend on the money you bring home.
However, did you know there’s no requirement that the beneficiary of a policy be a family member? In fact, you don’t even have to be the one who takes out a policy on your life. Your employer can do it, too.
The Ethical Concerns Behind Corporate-Owned Life Insurance
Corporate-owned life insurance (COLI), often referred to as “dead peasant” life insurance, is the life insurance a company takes out on an employee–something recently brought to light in the film, Capitalism: A Love Story. Though this practice has inspired much outrage among the family members of targeted employees as well as the general public, companies continue to do it.
Mike Myers, an attorney who has uncovered many instances of dead peasant insurance, claims what “is traditionally used to guard against the death of breadwinners…is an investment scheme.” The institutions that hold these policies are able to borrow against them and receive tax breaks, making them greatly beneficial for the organization, not the employee whose death results in a payout.
However, you might wonder why it matters; who cares if your employer has a policy out on you? While a dead peasant policy doesn’t cost you a dime, you might find the moral implications troubling:
- Your family gets nothing: The company you work for isn’t going to go out of business if you die, but your family could face seriously negative consequences if they lost your income. They’re the ones who really need–and deserve–your life insurance benefits.
- It’s a breach of trust: It’s required that a company obtain consent from an employee before taking out an insurance policy on their life, yet many employees and their families go unaware that an employer holds a policy on them.
- Your employer profits from your death: Isn’t that a creepy thought?
Why Dead Peasant Life Insurance Policies Aren’t Going Anywhere
So why hasn’t this practice been put to a stop? The IRS has been cracking down on it, scrutinizing policies that stand out as nothing more than thinly-veiled tax shelters, but many big companies continue to prevail. It’s no wonder, too, because according to MSN Money, corporate-owned life insurance is big business:
- Companies pay $8 billion in premiums annually
- Policies account for over 20 percent of all life insurance sold each year
- It’s expected these policies will provide companies over $9 billion in tax breaks over the next five years
Until dead peasant life insurance is no longer such a huge source of revenue for the life insurance industry and the government finally outlaws it, there is always a possibility that your employer could hold a life insurance policy on you. Thoroughly read any documents before signing them to be sure you aren’t unwittingly allowing your company to benefit from your death.