'Dead peasant' insurance extremely profitable

[eridani]

http://readersupportednews.org/off-site-news-section/122-human-rights/697-dead-peasant-policies

But the quiet widow from The Woodlands has been featured in a Michael Moore movie, watched her story retold on Good Morning America and is trying to let others know that their employers may have purchased secret insurance policies on their lives and stand to profit handsomely when they die.

The industry darkly refers to the policies as “dead peasant” life insurance.

And but for a post office error, Johnson might not have learned that when her husband, Dan Johnson, died of brain cancer in 2008, the bank that had fired him years earlier got $4.7 million in insurance proceeds on his life.

After accidentally destroying an envelope containing a check for nearly $1.6 million made out to Amegy Bank, the post office misdirected it to Johnson's home because Dan Johnson's name also was on the check.

Her attorney, Mike Myers of McClanahan Myers Espey in Houston, said she wasn't supposed to know that Amegy had the insurance policy on her husband, a project manager whose annual salary had been about $70,000.

“How could they be profiting off my husband?” Johnson asked recently during an interview with the Chronicle.

Myers filed a lawsuit on her behalf and forced the bank to reveal it bought policies in 2001 on more than 40 bankers, including coverage on Johnson — who had been diagnosed with terminal brain cancer about 18 months earlier and been out sick for several months.

[ixion]

1. little wonder that it is profitable, given our corporate work ethic

which is work until you die.

[Phoebe Loosinhouse]

2. If the bank knew his condition and did not disclose it to the insurer

some questions could be raised. Very very seamy behavior. Not to mention that 1.6 million on a 70K employee seems way excessive. There are people who are considered "key men" who are insured by companies, supposedly by some multiple of what it would take to replace the person and their expertise. If the bank was only paying him 70K and they valued him at 1.6 M, then they were really ripping him off in life as well.

Were the other 39 bankers insured for similar astronomic amounts?

Side issue - I thought that Dead Peasants had to be informed of any policies taken out on them. I know there was a brohaha over this type of insurance a few years ago and I thought this was one of the reforms?

[aquart]

3. Murder Inc. used to take out insurance policies on people and not tell them.

And then kill them. Back then, it was considered wrong.

[baldguy]

4. Dead peasant insurance has it's place, and is extremely appropriate in certain circumstances.

When, for example, a business is reliant in the particular set of skills or knowledge that only one employee possesses and which would be difficult or impossible to replace, the management has an obligation to the owners to insure the company against the likelihood of the loss of that employee

The problem is that 80-90% of the time it's not used in those circumstances.

[ret5hd]

5. What you are describing isn't called dead peasant insurance.

[Phoebe Loosinhouse]

8. What baldguy is referring to is called "Key Man" insurance

Dead Peasant is taken out on lower echelon types, hence the word "Peasant".

Here is Jonathan Turley writing about this case whichalso includes a link to another story about same.



http://jonathanturley.org/2009/02/25/peasant-uprising-widow-sues-late-husbands-employer-over-dead-peasant-insurance-policy/

[Land Shark]

12. I've been a business lawyer and "key man" insurance used to buy stock upon death; not for "peasants"

It is inappropriate to take out insurance policies where there's not an insurable interest like the need to come up with a lot of money suddenly to buy out a "key man's" stock in a closely held company so the estate can be settled.

Dead Peasant insurance is like taking out fire insurance on houses in your city whose people you barely know - your incentive is to hope the houses burn so you can collect. With dead peasant insurance, the incentive is even worse.

[Phoebe Loosinhouse]

13. I completely agree with you

There is no need to place a macabre gamble on the life of an unimportant peon. It should be illegal. Imagine mine owners taking out policies like that, which might have a perverse incentive for them to maintain unsafe workplaces?

There is no justifiable reason for Dead Peasants insurance. I am pretty sure that WalMart had to settle with their peasants once it was discovered they had these back bets going on.

In the banking world, a mid-level exec making 70K is still a peon.

[baldguy]

14. That's how the New York State Insurance Commission defines it.

[ret5hd]

19. Link?

[HillbillyBob]

6. I don't think 'dead peasant' insurance has a place at all.

Then again if they shared the proceeds as in 20% for the firm and 80% for the spouse and or children of the breadwinner that has passed so they are not destitute after losing their major income. 'Dead Peasant' seems to refer to lower echelon employees and the way these corpses treat them they don't seem all that important to the corpse.

[jmowreader]

10. That's how Home Depot's dead peasant insurance works, except for the ratios

Everyone who works there has a "free" life insurance policy; IIRC it pays your next of kin $5000 in case of death. You KNOW the Home Depot is collecting a few bucks on it as well.

I think what's most immoral about dead peasant insurance isn't that it exists, it's that they can continue to maintain the policy after terminating the employee--which happened to the person the article is about.

[eridani]

7. I think that's called high-value employee insurance

That's perfectly legitimate.

[rurallib]

9. Remember when 'Sicko' came out and this was revealed to the public

What an uproar ensued.
And like all things, after its 15 minutes of fame, this issue faded with nothing being done.
As noted the above is most likely key man insurance, but dead peasant insurance still flourishes.

The American worker - those who have jobs are probably worth more to the company dead than alive.

[TheMadMonk]

11. Not exactly sure how you can call it "Key man" when the employer fired...

...this "Key man" several years earlier.

This is an insurance policy taken out on a person they knew had a terminal disease. Either they committed insurance fraud, or the insurer allowed them a policy that you or I would have no access to.

[ConservativeDemocrat]

15. I'm not sure what to get upset about...

Does the presence of this insurance reduce the lifespan of the employee covered?

Is there any harm done at all?

If I want to go to Vegas and place a bet on when, say, Cheney has his next heart attack, how
does that hurt anybody?

Seriously, there are actual things to get upset about. This doesn't seem to be one of them.

- C.D. Proud Member of the Reality Based Community

[yodoobo]

16. The income stream isn't from the deaths

The income stream is actually from the *tax payers* (using workers deaths as fuel for system)

What they do is buy thousands and thousands of worker policies.

When you have thousands of policies, some pay off. But because insurance companies aren't in the business of losing money the total premiums exceed the total payouts. That's how the insurnance company makes money.

At this point the company buying the policies has only lost money.

That's where the taxpayers come in. (i.e. you)

The premiums are all tax deductible.

So they take a tax writeoff on the entire amount, and then employees death payoffs return most of the premium tax free.

Net Net. Its tax payer funded arbitrage between two sets of corporate actuaries using workers deaths as fuel for the system.

despicable.

[ConservativeDemocrat]

17. Ah, thank you.

It's just a tax dodge. Needs to be fixed obviously, but I was trying to understand why this was attracting such an intense level of outrage. You'd think, from the responses here, that the companies were killing people off or something.

I'll tell my Congressman about this the next time I see him.

- C.D. Proud Member of the Reality Based Community

[CBGLuthier]

20. treating people like commodities upsets some human beings

Weird how people think their lives should be their own concern and not an accounting trick.

[whyverne]

21. Thank you. It didn't make any sense to me.

How could the companies make more money than they paid out in premiums? The insurance companies wouldn't do that. That wasn't explained to me, til now.

[Born_A_Truman]

18. Yes, I've known about this practice for years

Saw a story about on tv years ago on one of the news magazine shows. Explains why even if employees turn down health insurance coverage, they still get "free" life insurance (mine was equal to a year's salary free; additional coverage if I purchased it.)