Hundreds of companies have taken out life insurance policies that will pay them tens of billions of dollars when their employees die. Bank of America stands to make $20 billion alone from the demise of its workers.
And the really creepy thing: The policies tend to be whole life, and companies hang out to them long after their employees stop working for them. That means Bank of America (BAC) and others stand to collect money not just from the death of their current employees, but from their ex-staffers as well.
On Monday, The New York Times ran an article pointing out how unsettling it is that companies are waiting to collect insurance cash on some (potentially large) number of employees. The real question: It is really wrong?
First of all, there is a legitimate reason for insuring current employees. The loss of an employee, even beyond a CEO or CFO, can cost a company money. And it costs a lot to recruit someone new and train that person. The law only allows companies to take out life insurance policies on the highest earning 35% of their workers.
Second, it’s not clear how employees are being ripped off. Companies are buying the policies from insurance companies and making the premium payments. If anyone is losing money on the policies, it’s either the insurance companies or the employers. But according to the NYT, there is a growing business in these policies, so it seems both sides of the transaction think they are getting the better end of the bet.
Yes, the former employer collects the money from the policy, not the dead person’s spouse or children or loved ones. But they could. An employee could take out their own fancy financial contract that will allow their heirs to “profit” when they die. It’s called life insurance and it’s sold all the time. The fact that a company has taken out a life insurance policy on you generally doesn’t stop you from doing the same.
Michael Myers, who has successfully sued companies based on these life insurance policies, agrees that individuals are not losing financially. But he says it’s less a financial matter and more of an issue of public policy and ethics. If companies care less about whether their employees live, they will care less about keeping them away from harm. But there are plenty of other laws that are supposed to ensure that workers are safe. Myers also argues that everyone should have the right to decide who benefits when they die. And that’s what people are being deprived of.
At the same time, there are plenty of ways companies make money from hastening their employees’ deaths. In the recession, companies laid off millions of workers. Productivity shot up as companies made the remaining workers do more. That means more time on the job, less time with family, and less sleep. Most long-term studies show that prolonged sleep depravation leads to poor health. Stress, too, is a killer.
Then there are pension plans and health retiree benefits, for companies that still have those. Employers can save money on those items when employees die younger than expected.
If anyone is being ripped off here, it’s Uncle Sam. Both the payments companies make for the life insurance policies and the payouts they receive when employees die are tax free. So, perhaps the biggest game being played here is a tax dodge. And in that way, taxpayers, who are ultimately the ones companies are insuring against, are being ripped off. But that’s probably a pretty minor rip-off when it comes to corporate tax dodges and not the kind to get the most upset about, even if it is the creepiest.