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.