Posts Tagged COLI

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Yesterday, I was talking to Buddy, my disgruntled coworker.  In the middle of his diatribe about the evil of large corporations, he asked me if I’d ever heard of Dead Peasants Insurance.  Nope.  Never heard of it.  My curiosity got the best of me, so I decided to do a little research, and share my findings with you.

I found out that your company may be holding a life insurance policy on you that you no nothing about.  These Corporate-Owned Life Insurance (COLI) policies are known as Dead Peasants Insurance or Dead Janitors Insurance, and are taken out against the lives of rank-and-file workers.  As stated in this article, the name was coined in a Winn-Dixie internal document in 1993, when that company took out 36,000 policies against employees without their knowledge or consent.

Companies have always insured their top execs or other key players, whose deaths may cause a true financial strain on the company.  The loss of their expertise justifies having them insured.  But what can justify the insuring of lower-level workers?

Well, the policies taken out against the average Joe have a more sinister purpose: tax-free cash flow that can be used to fund operations or pay executive compensation.

Let’s see how the company benefits from these policies:

1. Company purchases life insurance policy on the janitor.
2. Janitor must clean up toxic waste/asbestos/medical waste as part of his daily routine.
3. Janitor gets sick, dies a slow, painful death.
4. Company pays out $17 grand to janitor’s widow, while pocketing $100 grand from the policy it held on the janitor’s life.

Let me elaborate: because these are death benefits, the money received by the company is tax free.  They can even use the policies as collateral for tax-free loans.  Nice little racket they have going on.

You may think, “my company would NEVER stoop so low”, and you may be right.  But don’t be naive: Wal-Mart had taken out about 350,000 of these policies between 1993 and 1996 alone, according to this article.

The IRS has tried to crack down on these policies, but the insurance lobby is strong enough to stop these reforms.  I wonder if my company is holding one on me?  Now i know why they think I’m so valuable!  So while my wife may receive death benefits from my employer after I kick the bucket, they’re probably just a fraction of what my employer will receive.  But I’m not worried.  Companies tend to be real sneaky about this tactic.  I won’t know about it anyway, so when the time comes, I’ll Rest In Peace!

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Further reading:

Does your boss want you dead?

How “Dead Peasant” Insurance got its name

Corporate-owned life insurance

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