What Is Dead Peasants Insurance?

Written by KPI

Ever hear of dead peasants insurance? It’s not exactly what it sounds like. It’s jargon which discusses corrupt businesses who look to make a substantial return of investment, though they are willing to break the law to do so.

Not all companies have the interests of their employees in mind, unfortunately. There are instances where a company takes advantage of its ability to purchase insurance, when it wrongfully and willfully seeks to gain of its own interests.

Dead Peasants Insurance, Defined

Dead peasant insurance is a slang term used to describe life insurance policies purchased by businesses on the lives of their ordinary employees for the express benefit of the company.

In some cases, corporations have purchased these policies on the lives of their employees without their knowledge or consent.

Dead peasant life insurance has led to many class action lawsuits against companies abusing this strategy of purchasing corporate owned life insurance, also known as COLI, on its non-key employees and has also led to the IRS establishing specific guidelines and requirements for all employer owned life insurance policies purchased after August 17, 2006.

A Quick Example

One of the most publicized incidents of a corporation who tried to capitalize on the strategy of purchasing dead peasant policies as an investment was Walmart.

In the mid 1990’s, it is estimated that Walmart purchased over 300,000 life insurance policies on its employees and named itself as the beneficiary. Many of these employees were rank and file workers who, in some cases, had no idea life insurance was being purchased on their lives. Walmart’s intent was to keep the COLI policies as an investment with the company, by collecting the death benefits at the insured’s death. Their ultimate goal was to earn a higher rate of return on their investments than what they could otherwise earn.

The obvious issue with dead peasant life insurance is one of ethics and brings to light the depths some companies are willing to go to grow the bottom line.

In response to the outright greed of corporations and their attempts to  exploit employees for gain, Congress and the IRS, in The Pension Protection Act of 2006, included specific guidelines and requirements for all corporate owned life insurance policies. For more details, see Pension Protection Act of 2006 specifics.

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John Phelan

I don’t understand this. Insurance companies are in business to make money. They have to price their policies to bring in more in premiums than they pay out in claims. Therefore buying 300,000 life insurance policies on ordinary people should invoke the law of averages and you should lose money, unless you have created circumstances where your employees are dying at above average rates for reasons the premium pricing isn’t capturing.

May 13, 2020 at 6:15 am

    John, thank for your question. While it is certainly true insurance companies want to bring in premiums, they really only want to ensure people that are ultimately trying to protect their families or businesses. In the case of “Dead Peasants” insurance, many of the companies buying policies on their employees really had no real risk of loss IF an employee died. There was no “insurable interest.” In other words, the company was not going to suffer economically if the employee passed away. These companies were only looking to profit from the exploitation of their employees. This the main reason why laws were enacted to prevent this type of abuse.

    May 20, 2020 at 6:25 pm
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