As I See It: Dead Peasants
by Victor Rozek
The concept of life insurance always struck me as being ironic. Essentially, you're laying bets on your own early demise, while someone happily pockets your monthly premiums and wagers that you'll live for a very long time. Of course, the reason why we bet against our own survival is that our families will benefit, should we die prematurely. So, in a cautious if twisted way, wagering on your early demise makes sense. But what if your employer was also betting on your premature death?
It's a morbid conflict of interests, but if you work for a large corporation, there's a good chance you're worth more to your company dead than alive. The sanitized name for it is Corporate-Owned Life Insurance, or COLI, although critics and industry insiders refer to it as "dead peasants" insurance. The word "peasants" refers to the position and wage level of the people being insured. These are not policies taken on corporate officers, but on janitors, clerks, store greeters, and other rank-and-file employees, including IT personnel.
Arguably, COLI is a logical extension of classifying people as "resources," like vehicles or computers that can be insured against loss; and an estimated one-fourth of the Fortune 500 corporations are quietly profiting from the death of their employees. Among them, Disney, AT&T, Nestle, Procter & Gamble, Dow Chemical, Pitney Bowes, Wal-Mart, and that other champion of ethical corporate behavior, Enron.
Here's how it works. A company takes out a life insurance policy on you, usually without your knowledge or consent. It writes off the premiums as a business expense, then collects the insurance as a tax-free death benefit after you pass on. The company can even borrow against these policies, should its employees inconveniently survive beyond their expected expiration date. Think of it as a lucrative, tax-exempt corporate investment that pays off upon your death, except that your family will never see a penny of it. Just ask the survivors of Felipe Tillman.
The Atlanta Journal and Constitution reported that when Mr. Tillman died, his employer, CM Holdings, pocketed a tidy $339,302, while his family received "a big, fat nothing." The entire amount was no doubt needed to console the grieving company in its time of loss.
Despite the fact that insurance companies, which collected an estimated $2.8 billion in premiums in 2001, lobby strongly in support of this barbaric practice, it isn't legal in all states. In Texas, for example, the issuance of an insurance policy is guided by the principle of "insurable interest," which requires some evidence that the person requesting the policy stands to suffer financial hardship or tangible deprivation as the result of a loss. So if your house burns down, or an income-producing spouse dies, that would clearly demonstrate both financial loss and tangible deprivation. Having a billion-dollar corporation insure the life of an $8.00-per-hour clerk, on the other hand, would not.
Texas law, however, did not stop Wal-Mart from taking out 350,000 policies on its Lone Star employees. To bypass those annoying Texas regulations, the retailer insured its employees with a company in Georgia. And no one would have known, except that a tax attorney who happened to be looking into Wal-Mart's affairs uncovered the scam and sent a letter to Linda Waller, whose late husband worked in Wal-Mart's automotive department. Waller was surprised to learn that her husband had been insured for $64,000, and she approached Wal-Mart's human resources department seeking an explanation. She was assured that no such policy existed and that she was being poorly used by ambulance chasers.
But further investigation proved otherwise, and Waller, along with the families of other employees, sued. The U.S. District Court agreed that Wal-Mart had no insurable interest and that the money should go to the estates of the deceased. Wal-Mart had argued that there was nothing untoward about this arrangement at all. Employees were offered a $5,000 "death benefit" and were free to refuse it. Wal-Mart, however, neglected to inform its employees that the policies were worth considerably more than the sum of the benefit, or that the company would be the major beneficiary. And, according to the attorney who uncovered Wal-Mart's insurance practices, if employees refused the special "benefit" they became ineligible for future health insurance.
All of which raises any number of troubling ethical questions. For instance, Wal-Mart hires a great many senior citizens, who either need to supplement their Social Security or simply want to fill the empty hours of retirement. Are these attractive hires because they pay off more quickly? Motivation is, of course, unknowable (unless someone finds the memos), but the practice of purchasing COLI does create some grotesque incentives.
Another company, Camelot Music, was part of the same lawsuit. It insured its low-wage employees for princely sums of between $273,000 and $368,000. The possibility of such extravagant death benefits must create a certain ambivalence in employee-management relationships. At the very least, it must be unnerving to have your management hoping you'll get hit by a bus on your way home. Imagine if Union Carbide had this kind of foresight 20 years ago and had bothered to insure the employees in its Bhopal plant. It would have been cheaper than fixing its antiquated facility and providing proper training. And why stop there? Why not insure the villagers in the surrounding area? Three thousand dead: what a payday! Warren Anderson, the CEO, probably would have received a bonus. If you think that's an exaggeration, think again. The Wall Street Journal reported, without notable outrage, that death benefits were used to fatten executive compensation.
The incentive for negligence is huge. Among the cases I researched was a company that owned convenience stores and chose to insure its employees rather than install safety measures in its stores. A competing company did not insure the lives of its employees but installed bullet-proof glass in its facilities. During a five-year stretch in the 1990s, the company with the safety measures reported one on-the-job death. The company that insured its employees reported nine. Not much incentive to make the workplace safe if you can save money by doing nothing and then profit from the coming disaster.
Hundreds of large companies are breathlessly waiting for millions of current and former workers to perform their final service to their corporation. As families mourn, their loved ones will live on (at least as notations in an annual report), forever memorialized as off-balance-sheet assets. What it lacks in sentimentality, it makes up for in avarice.
Now, as individual employees, most of us would want to know if someone was investing in our demise. We might, for example, chose not to work in a so-called clean room or around dangerous chemicals; we might refuse the stress of overtime, balk at the unreasonable schedule, and resist making the after-hours programming change. We might, in short, take better care of ourselves, if only to delay rewarding those who invest money in the hope that we will soon die. But chances are we will never know. When a bill was introduced in Congress that would have forced companies to notify employees covered under COLI policies, our purchasable politicians didn't even give it a hearing.
So what's a peasant to do? Why not band together and take out policies on top management and their board of directors? Most of them are older than we are and are under considerably more stress, so they're likely to pay off sooner than we will. In an era when companies are stripping and defrauding employees of their pensions, think of it as an unauthorized retirement benefit.
And when the CEOs begin to howl with moral indignation, we can reply, à la Michael Corleone, a man who knew a thing or two about profiting from the death of business associates: "Nothing personal; it's only business."