Your Company Could Stand to Make Millions from Your Death

Published: Fri 16 Apr 2010

Wendy Blair

Just when you thought corporate America couldn't get any seedier or greedier, another despicable business practice comes to light-"janitor insurance." Janitor insurance, also called dead peasant insurance, is a company-purchased life insurance policy on a relatively unimportant employee. Companies take out these policies on low-level employees simply because the worker is worth more to them dead than alive. In most cases, the employee has no idea the company has taken out a life insurance policy, as disclosure is not mandated by law.

When the worker dies, the company collects the proceeds of the policy tax-free. Although clerks, secretaries, and janitors may not have offered much monetary value to the corporation when alive, they provide a windfall of tax-free income when dead and well-insured. Of course, the dependents of the decedent will not see a dime of the corporate-owned life insurance (COLI) policy. But you can bet the farm that the proceeds of the policy will help pad the pockets of the fat-cat executives at the top.

COLI Benefits: Why You Could Be Worth More Dead

So exactly how profitable and common is COLI? The practice is nearly ubiquitous among major corporations and banks, and the profits are off the charts. The worker and his/her family benefit in no way from COLI, but corporations make out like bandits. Here are just a few of the benefits of taking out janitor's insurance:

• The death benefit of the policy on the worker is collected tax-free


• Life insurance policies provide a tax-free investment as their values increase


• The future death benefit is an appealing off-balance-sheet asset


• Prior to 1996, companies could take out loans against COLI policies and deduct the interest on their taxes


• Companies are not required to reveal how they use the money once the death benefit is disbursed

Legality and Ethics: How Can This Be Legal?

Although morally reprehensible, the practice of taking out janitor's insurance is perfectly legal. Previously, the law prohibited companies from purchasing life insurance policies on low-level employees because no "insurable interest" existed, meaning the companies would not suffer any financial hardship if the employee died. During the 1980s, however, the rules changed, and the practice became rampant.

Now corporations regard COLI as an informal pension fund for their top executives instead of an objectionable way of capitalizing on death. Essentially, COLI is a twisted pyramid scheme that exploits the deaths of the working class to bankroll already-obscene executive bonuses. And the dead worker probably did not even know of the policy, which may be for the best. At least then his loved ones can avoid the pain and indignation of realizing the loss of their father, son, or brother helped pay for a VP's ski weekend in Vail, a CFO's six-figure Jaguar, or a CEO's Learjet.