employee dies,employer profits

Mike Maslanka · April 2002

Anyone been following the stories in the Wall Street Journal?It seems that companies have---for years---been taking out life insurance policies on their employees---and not just the key people---but everyone.It is called janitors insurance.And,they do not tell the employees about it.According to the Journal,our state,texas,prohibits this.What do you think?...Mike Maslanka

Down_the_Middle · April 2002

At first glance, I think the suggestion sounds silly, but upon reflection, I'm not troubled with it. If an organization is willing to pay the premiums to insure their employees, why wouldn't they be entitled to the death benefits. Presumably, the insur coverage will be used to offset the vacancy costs associated with a sudden departure, so I see no ethical issue with it. It's more of an economic issue with the employer and likely is only practical for smaller firms where an employees unexpected death might have injurious effect to the company.

Mike Maslanka · April 2002

the journal articles note that the insurance is used more as a revenue stream than as a cushion to recover retaining costs etc... mike

Rockie · April 2002

Mike - there was a big article on the national news last week concerning this - most notably Wal-Mart was one of the bigger employers that practices this policy. They are currently being sued by at least one person whose husband died and the company profited by over 60K. She felt this practice was unethical and an invasion of privacy.

I have heard of companies insuring their top level executives, but this also seems to be a practice for lower level employees as well. The companies state it is to help defray replacement costs of employees, but I daresay it has something to do with revenue.

I feel if the companies felt this was proper, they would not hide it from employees and would be up front about it.

HRAMERICA · April 2002

I agree with those who say that it is not ethical, nor should it be permitted for an employer to "profit" from the death of an employee. And, strictly speaking, if an employer has a legitimate insurable interest in an employee then an employee has a legitimate insurable interest in its employer and every other employee. Accordingly, let's all buy death policies on everyone. Comments?

Frenchie · April 2002

I have a problem with the fact that a company can profit from my death. Let's turn this into a Lifetime movie; if the business starts struggling will employee's begin to die?

KenB · April 2002

I know that New York has a specific statute governing this practice. It's allowable where the company has an insurable interest in the employee and the statute spells that out, but it also requires that the employee be notified that the company is taking out a policy on him or her.

franfields · April 2002

Many companies buy "Key Man" life insurance. The intent is to cover the cost to recruit and train a replacement and to cover any loss of income that occurs because the person left, or due to not having the position filled while the replacement is being recruited and trained. Those costs and losses may be very real in some instances. I don't believe the intent of the insurers is for the company to profit. If the company buys it strictly to profit, shame on them.

Mike Maslanka · April 2002

The revenue from the proceeds are also used to fund the bonuses of executives...frankly,this type of news confirims in the minds of potential jurors that corporate america does not care...mike

Down_the_Middle · April 2002

Mike's last comment makes me want to re-think my initial reaction. Now, that's sleezy................

WT · May 2002

One point seems to be missed. Life insurance companies are not in business to go broke. The premium is based on the probability that a given person of a certain age will or will not die. If it were possible to make money on such a practice, it would be much more widespread. Look at all the premiums for all your employees and then try to remember how many died while in service. If this is such a profitable scheme then why don't all the nursing homes insure their clients and get rich?

Mike Maslanka · May 2002

The Journal reports that legislation is now pending in Congress to outlaw this practice.