BOSTON (MainStreet) — You may be worth more to your employer dead than alive.
Since gaining popularity in the 1980s, companies have been taking out Corporate Owned Life Insurance policies on employees and listing themselves as the beneficiary. Many workers go about their workday with no clue that such policies exist and that their company has placed a bet on their timely (at least from an actuarial standpoint) death.
Unlike traditional "key man" policies that a company might have on an executive or invaluable employee, insurance referred to as "janitor's insurance" a "mortality dividend" or "dead peasant" policies are on rank-and-file workers. The term was coined by an insurance brokerage firm in memos made public during a tax-related lawsuit filed by the IRS against the supermarket chain Winn-Dixie (Stock Quote: WINN) (which bought life insurance policies on approximately 36,000 of its employees without their knowledge or consent).
"I think it's the rare situation that people have an incomplete understanding of the entire transaction or whether there is coverage at all," says Mike Myers, an attorney with the Texas firm McClanahan Myers Espey who specializes in COLI cases. "There are plenty of laws requiring notice and consent and whatnot that would let people know whether their lives are covered by these policies. Unfortunately, those laws very often get ignored and people do not know that their lives are covered. Even if there is some minute mention of it, they certainly do not know any meaningful level of detail about what the transaction really involves."
"I've seen insurance on people who do janitorial services, who are part-time clerks working at a mall, people who gather up shopping carts in the parking lot and convenience store clerks," he adds. "We are not talking about key executives who likely participate in the decision to have this insurance put on their lives. We are talking about down to the most basic level of manual labor ... It would not be unusual for a retail clerk to be covered for several hundred thousand dollars."
There are ways around the many state laws that require an employee to be made aware of such policies. In some cases, they are given a smaller amount of company-paid life insurance as an enticement. Consent can also be buried amid the fine print of human resources documents. Or everyone just looks the other way.
"Laws are pretty consistent and common about getting consent before you insure someone's life," Myers says. "Unfortunately, what happens is that they either get ignored by the insurers and the policyholders or they try to find a state where maybe the law doesn't have a lot of teeth. We have seen situations where executives get on airplanes, fly to an airport in a favorable state, sign the paperwork, fly back home to the corporate headquarters and then argue that the law of that favorable jurisdiction should apply because that's where they met at the airport to sign the papers."
Georgia, a state with no legal restrictions on the practice, is a popular pit stop for insurance paperwork.