Profiting from death? Lawsuit filed in Wal-Mart life insurance case

Houston Chronicle ^ | April 15, 2002 | L.M. SIXEL

[Ross Amann]

Any company has an interest in the life of any employee - to at least the cost of finding and training a replacement (though I doubt this comes to $64,000 for a low-level emplyee).

Does this discourage safe working conditions? Not theoretically. It just transfers the benefit of safety to the insurance company - which would charge more for the policy if the workplace is unsafe.

This sounds more like a taz dodge than anything else. Are insurance payments treated "off book", when figuring profits, while insurance premiums are "on book"?

[flying Elvis]

What annoys the hell out of me about this is these same companies provide pitiful health insurance packages to their workers yet cash in big time when one dies. As much as I hate labor unions, I'll cheer if they organize Walmart employees.

[mutchdutch]

If the cost of the policy is deducted, I believe the benefits are taxable. Can anyone else confirm this.

Some one is always crunching the numbers in that the cost of the policy is probably cheaper than the cost of adequate serurity measures.

[supercat]

I recall my late wife telling me that, at least in Illinois, third-party life insurance requires the consent of the 'insured'. I don't think there must be an insurable interest necessarily, but I don't think secret policies are kosher.

[FYI, I may be misremembering or misunderstanding what my wife told me, but since worked in the industry and passed her LOMA courses, she should have known].

[tdscpa]

The corporation could not deduct the premiums if it is the beneficiary.

[B4Ranch]

aardvark1

member since February 4th, 2002

[Sloth]

And I say again, you must have and insurable interest to get a policy.

Seems like insurance would constitute illegal gambling in many states, otherwise.

[lodwick]

Thanks for this most disturbing find. I knew about KeyMan insurance, but this dead janitor stuff is truly reprehensible.

[Sunshine Sister]

Very well said. I think this situation is actionable by the families of people who were insured in this manner.

[ValerieUSA]

They try.

Camelot Music was also sued in the same case after former employees, including many part-time workers making close to mimumum wage, discovered they were insured for between $273,000 and $368,000 each.... The Camelot case came to light after it sued the Internal Revenue Service after it disallowed the company's tax deductions on the insurance premiums.

[Sunshine Sister]

I didn't go past LOMA 1, however I think you are correct.

[ValerieUSA]

I'm wondering.... even though he had resigned from Enron before he died - did Enron still have a corporate life insurance policy out on Baxter? Would they collect even in the event of suicide? My guess on both questions for now is YES.

[ValerieUSA]

bump

[Still Thinking]

As much as I hate labor unions, I'll cheer if they organize Walmart employees.

I don't hate labor unions, at least not in theory, and things like this are the reason why. I remember a guy I used to work for who absolutely hated labor unions, and we kind of agreed to disagree on the issue. Later I found out that our company and several competitors in town were in effect bargaining collectively against the employees of all the firms, as they had agreed not to solicit or consider for employment anyone employed by any of the other firms. I had no particular problem with this, but I had a BIG problem with this guy doing this while wailing about the evils of organized labor. For him it was a crime for the mice to bargain collectively with the cat, but the cats needed to band together to counter the influence of individual mice. What a Dasch-hole.

[ValerieUSA]

bump

[wardaddy]

I'm guessing these are some sort of equity producing policies perhaps and they can write off the premiums as an expense, borrow against the equity in the policies as owners of said policies, and then reap the windfall upon death of the insured.

It may seem morbid and it might look a bit bad if insured parties start dropping like flies but it looks to me like an economy of scale investment/tax deduction plan and not anything sinister.

I don't know about Wal-Mart enough to comment but I do know enough about trial lawyers to know whose side I generally am not on.

Why is this different than corporations paying huge KeyMan policy premiums of which the Company is the owner and beneficiary?

[wardaddy]

Companies that insure high ranking officers or owners and are both the owner and beneficiary can indeed charge the premiums as an expense. Some of these premiums are so huge that if they can't deduct them, I don't see how they can justify them.

[tdscpa]

I guess they can justify them. Possibly due to the fact that if they collect on the death of an officer, the proceeds are tax free. If they insure enough officers, the tax-free nature of the proceeds makes it a wash, taxwise.

Believe me, except for group term life insurance limited to $50,000 of coverage per insured, or some type of life insurance purchased through a pension plan, life insurance premiums are not deductible.

[connectthedots]

When families collect on a life insurance policy, the benefit is non-taxable. I think that is great. But for corporations to make non-taxable profits on the deathof minimum wage employees? uh-unh. Do they think they OWN these people?

Yep!

[ValerieUSA]

They borrow the money to buy the premiums. It's debt. A write-off.