Life insurance is just a tax-advantaged investment vehicle. The companies aren't "profiting from your death." They pay the premiums, those premiums get invested, and the company gets the proceeds when you die. It doesn't preclude you from having your own life insurance. Your only involvement is as the hook that enables the tax advantage.
Ordinarily, one wouldn't buy life insurance in aggregate as an investment. The insurance company has done the calculations, and it would be a net loss to the buyer. (The buyer is willing to take that loss for security, which is just fine.)<p>The only reason it's happening here is that the government gives tax breaks, and those tax breaks are higher than the insurance companies' profit margins, so it actually turns out to be a net gain for <i>both the seller and buyer of life insurance</i>.<p>Surely, this is the result of lobbying by life insurance companies. It doesn't make any sense on its own.<p>Similarly, it makes no sense for companies to buy their employees health insurance. The reason it started is because of the tax breaks which make it cheaper for the company to buy you health insurance than for you to buy it on your own. (Aside: I don't believe for a minute that it somehow results in some magical savings from group bargaining.) Now that's a big part of the mess we call our healthcare system.<p>Direct your criticism to these special carve-out laws that make a mess of everything. Don't direct it towards the companies that rationally take a tax break that is already on the table.
I'm not that concerned about the practice until companies start killing employees in order to collect sooner. Unless the policies actually affect the individuals thus covered, al they really amount to is a tax avoidance scheme.
Naturally the film industry would be very keen to insure against their cast[1], but I would feel a little uncomfortable if my employer were better off if I had an 'unforeseen accident'.<p>[1] <a href="http://www.insureme.com/health-insurance/hollywood-insurance" rel="nofollow">http://www.insureme.com/health-insurance/hollywood-insurance</a>
Had no idea this was going on. I'm aware of life insurance offered through the company for myself at very low premiums (and I guess google and the like are no premiums for whatever-x your salary). First time I've heard of a completely separate policy with the company as beneficiary. If the terms last even until you leave the company, it's a no brainer for the employer. Everyone dies.
I get that the companies here are not trying to off employees and collect.<p>It does, however, sort of remind me of the Herbalife "investigations", where a hedge fund bet $1 billion that Herbalife would fail and then began lobbying politicians to bring it down. You look at the lengths these guys went to and consider the potential impact of their efforts, and it's unsettling to say the least - <a href="http://www.nytimes.com/2014/03/10/business/staking-1-billion-that-herbalife-will-fail-then-ackman-lobbying-to-bring-it-down.html" rel="nofollow">http://www.nytimes.com/2014/03/10/business/staking-1-billion...</a><p>For me, it calls into question what behaviors are incentivized by allowing people to seek any sort of financial benefit from people/companies in which they have no real property interest (for lack of a better term). I don't think this is purely a financial/tax inquiry; it does seem to have some societal ramifications that ought to be considered as well.
Here's my attempt at running the numbers:<p>Scenario one:
Company takes out an insurance policy for $1,000,000 on an employee. The expected remaining life of the employee is 20 years. The expected return on investment is 5%. The insurance company prices the contract so they make 10% of the returns. The company pays $32,000 per year for 20 years, then gets the $1,000,000 payout.<p>In the insurance policy scenario, the company gets $1,000,000, with no taxes owed, a gain of $360,000.<p>Scenario two:
The company invests this $640,000 ($32,000/year * 20 years) on its own on the same schedule and with the same expected return on investment. They earn approx. $1,111,000 and owe capital gains tax on the $471,000 gain, which at a rate of 15% is $71,000, for a net gain of $400,000.<p>Scenario two: investing the money themselves and paying cap gains, makes more sense than scenario one: buying insurance. Unless the insurance company is taking less than a 7% vig.
Dead Peasants Insurance. The name says it all really. Banned in most countries, for good reason.<p>Edit: The downvotes are interesting. People don't being reminded it is banned for good reason, or object to the well-known industry-wide perjorative name for the said insurance? Wikipedia covers the reason for the name well enough - look it up!
Insurance is only an investment if it's used to hedge risk to some other asset of value. Employees aren't your assets, unless you're participating in indentured servitude. This is just gambling at best, hiding money at worst.<p>I get insuring your movie against the star dying. If someone wants to start a business insuring the internal projects of companies against people crucial to them either quitting or dying, that's fine with me. But with no asset at risk, there's no difference between your company buying life insurance on you and me buying life insurance on you.<p>Of course, CDSs are still legal to buy against companies who don't owe you anything, so I should really just give up the idea that financial regulation has an obligation to society in general rather than just in setting up a fair playing field between speculators.
I've also seen this done with founders where the policy is used to buy out a founder's estate, as well as being used to cover the business risk presented by that founder's (or senior staff member's) death.
If the firm also took out a policy for the same amount and under the same conditions, paid for it themselves, but named a beneficiary of my choice, I'd be OK with this practice. Sure it doubles their premium costs (absent a quantity discount), but in my mind it would resolve any ethical issues since my heirs would also receive a benefit from my demise.
Am I the only one who thought the obvious thing to do if the company wanted to make this problem go away is to give the employee's family a reasonably cut?
>But absent meaningful regulation around the practice, it grew unchecked, and soon companies were taking out policies on many poorly paid employees like janitors, then reaping millions in profit when they died.<p>Most of the article is about Universal Life products, which is a product that is generally considered an enormous scam (it is a really poor investment vehicle), however this part really stood out.<p>Anyone planning on making money through insurance needs to understand that the house odds are against you, at least unless you have insider knowledge or are hiring hit men. Insurance companies are very very smart, and you won't profit by trying to play the odds against them, <i>especially</i> and most certainly in the aggregate.<p>So you come to the reality that this is wholly a tax avoidance scheme (sometimes legal, sometimes not). Not really about profiting from death, or usurping someone's great insurance payout, but simply hiding money away for some period of time.<p>This is a tax code discussion that has perilously little to do with life or mortality. Just taxes and ways around them.
I'm on other side of this. While I understand the need to keep pension plans afloat, when my mother passed away in 2011 the value of her pension left to my brother and I was ~$60,000. This was split between the two of us.<p>While no small sum, the mortgage was not paid off and I have been paying it since. I have no idea if HP took out an insurance policy on her, but if they did it was most certainly WAY MORE than $60,000.<p>This shouldn't be a vehicle for profit in my opinion. Unfortunately, she only had an accidental death policy. So if her corporation had a general life insurance policy in the $400-500k range - as her heirs, we should be entitled to some of that money.<p>Yes, we as consumers/employees have to take responsibility for our choices. So some might argue it was her fault she wasn't covered well. I would disagree. There are a lot of companies that aren't honest about this practice. So, if the company has you well covered, if they are a good company, shouldn't they extend you the same courtesy and offer to let you buy in to the plan?<p>The point being, why are they only looking after their best interests? It's bullshit to say they are just keeping their pension plans afloat because of the payoff amounts.<p>There is an ethical dilemma because a lot of companies hide what they are doing. That and the certain return when the employee dies.<p>It should not be an investment vehicle, period. It is profiting from death. Of course you can have your own life insurance. Just because someone is my employer, shouldn't give them any right to take out insurance on me.