Most life insurance policies provide financial assistance to a deceased person's surviving relatives. When an insured person dies, his life insurance benefit goes to the beneficiary of the policy such as his spouse or children. This money is usually used to pay for funeral expenses and replace the income of the deceased. Another type of life insurance exists, however, that many people have been unaware of until recently, and it has a more nefarious purpose.
So-called "dead peasant" life insurance is a policy purchased by an employer to insure the life of an employee. If the employee dies while the policy is active, the death benefit is paid to the employer. In many cases, the insured employee never realizes that a policy is out on his life, and death benefits are paid without anyone in the family knowing the policy existed.
The question of whether these policies are moral or even legal has only recently been brought to light by the Michael Moore documentary “Capitalism: A Love Story.” Employers are shamelessly capitalizing on the deaths of employees...not just key personnel, like CEOs and CFOs but any employee of any rank that can make them a quick buck or two. Many people learn about dead peasant life insurance only after a loved one dies, and view it as betrayal and insult against the deceased's memory.
Initially, dead peasant policies were created to provide protection to companies when certain key employees passed away. If an extremely valuable employee dies unexpectedly, a company may need money to compensate for the resulting lost profits until it can replace the employee. In this regard, such an insurance policy makes sense.
Many businesses, however, extend these policies, especially when life insurance rates are low, to cover lower-level employees whose absence would be of little concern financially. Some have the nerve to take out employee policies after learning of a severe illness, cashing in on the employees poor fortune. Companies can profit from employee deaths, and they can write off the policy expenses on their taxes, making the option very appealing. Sometimes companies maintain these policies after employees leave their employment. The former employees might never realize they had been insured.
Insult to Survivors
One individual highlighted in Moore's documentary, Irma Johnson, learned about the dead peasant insurance covering her husband, Daniel, because of a banking error; the bank mistakenly sent the benefit check to her rather than to Amegy, her husband’s former employer. The Johnson situation is especially grim because Amegy reportedly purchased the policy after Johnson was diagnosed with brain cancer, effectively guaranteeing a profit. Johnson was not employed by Amegy at the time of his death. In fact, the company terminated him just after purchasing the $1.5 million insurance policy, which it continued to pay for until his death.
Although dead peasant insurance costs an employee nothing, many view it as a breach of trust. Family members feel betrayed when a company profits from a tragedy, especially when the insured was unaware of the policy. As survivors begin to file lawsuits against offending companies, awareness of this practice will grow. In the wake of Michael Moore's documentary, businesses may need to rethink this moneymaking scheme.
Jessica Bosari is a freelance writer and blogger for various publications and her own blog. You can read more of Jessica's work here. If you have any comments or questions about Billeater or about saving money, leave your comments in the form below or email firstname.lastname@example.org. Thanks!