Question

It is common practice in America for companies to take out corporate-owned life insurance policies on their leaders and senior management, so that the company can offset the cost of replacing them if they die. However, some companies have begun to extend this practice to their low-level employees, which have become known as “dead peasant” policies. Although profitable for the business, it is often the case that the families of these low-level employees are not aware that this step has been taken and the practice has been outlawed in some states. Is this practice ethical for all employees? Or just top corporate leaders?

Case

Insuring the lives of top executives is common practice in corporate America. The death of a CEO or CFO can put the future of the company at risk; replacing these individuals can be costly. Large companies often take out life insurance policies, called corporate-owned life insurance (COLI) polices, on their leaders to help offset these expenses. Some firms extend their COLI policies to cover low-level employees. These policies, sometimes referred to as “dead peasant” or “dead janitor” insurance, are taken out on rank-and-file workers like convenience store clerks, electrical linemen, and cake decorators. The company pays the premiums and receives the death benefits when the employee dies. Often, workers and their surviving family members do not know that these policies exist, prompting one attorney to call these policies corporate America's “dirty little secret” (Mason, 2002). In a case featured in the film Capitalism: A Love Story, the widow of an Amegy bank project manager discovered that the bank had received a US$3.8 million payout after her husband's death. Her husband's salary, before the bank fired him, was US$70,000. (She later sued Amegy and settled for an undisclosed sum.) In another instance, Wal-Mart collected US$381,000 after the death of an employee but didn't reveal that fact to his spouse. Dead peasant policies can be profitable. The lump sum paid to the company is tax free, and in the past, the cost of the premiums could also be written off. Press reports name Proctor & Gamble, AT&T, Walt Disney, Portland General Electric, and Nestlé as corporations carrying COLI policies on low-level workers. At one time, as many as one quarter of the Fortune 500 purchased such policies, covering as many as 5–6 million workers. However, fewer companies took out such insurance after the tax laws were tightened. Wal-Mart says it discontinued its program when the tax law changed and after it lost several lawsuits. Nonetheless, policies purchased earlier may still be in place at a number of firms. Rules on dead peasant policies vary between states. Some jurisdictions outlaw this type of insurance, requiring that companies demonstrate that they have an “insurable interest” (would suffer significant loss of income) in the individual covered by the policy. Others require that employees give their consent before such insurance can be put in force. Corporations defend their use of dead peasant policies by claiming that the insurance helps defray the expenses of providing benefits for executives and of providing health insurance for employees and retirees. Critics scoff at this explanation, noting that insurance payout monies are generally mingled with general revenue. They point out that taking out such policies without the knowledge or consent of employees is disrespectful and treats workers as resources, not as human beings. Such insurance also sets up a potentially deadly conflict of interest. Employers, who are in charge of safety, now have a financial stake in the early death of employees. As one surviving spouse asked, “What incentive is there for a safe work environment if companies can do this?” (Roesler, 2003).

Discussion Questions

1.Do you think it is ethical to insure top corporate leaders? What criteria should be used in determining who should be covered?

2.Would you agree to a company-owned insurance policy on your life if it was required for employment?

3.What would Immanuel Kant say about dead peasant policies?

4.Are dead peasant policies unjust?

5.Do you think that employers have a conflict of interest if they hold life insurance policies on their employees? Why or why not?

6.Are dead peasant policies ethical if (a) workers are notified of their existence; (b) if the proceeds go towards supporting employee benefits?

7.Would you support a total ban on dead peasant policies? Why or why not?

Answer 1

Ans 1- Insuring top corporate leader is good at some extent but not ethical always. As, if any top leader dies then it is huge loss of company in monetary term, because searching new leader it takes time and in this gap company can't work efficiently, moreover new leader usually charge higher payout. So, in this case it is ethical, but sometimes company treat it as source of income, then it becomes unethical. Second, company should take consent of respective employee otherwise it is unethical. Third, there should be some portion of payment of insurance for employee who is insured, otherwise it is unethical.

Following criteria should be used in determining who should be covered:

• Reputation Checking

• Genuinity of person

• Medically fit or no cronic illness person should covered

• Best global practice should be considered

And 2- If it is optional for employment then I will not go for it, because there is no benefit for employee on the other hand it is bountiful for company only, but if it is mandatory for employment then I will choose, because salary and other benefits are more important than this particular insurance and I will earn salary and other benefits besides this given by company.

Ans 3- Immanuel Kant said that it seems pretty for over. He added it is a practice that almost calls out for a modern day Gogal to capture ghoulishness except that it might hard to improve on Lewi's non fiction version.

Ans 4- Dead peasant policy is unjust because:

• In this there is no consent of employee.

• No portion is given to family of deceased employee.

• Later it was treated as source of income for companies.

• Companies may deliberately provide unsafe environment for employees.

This policy is fair at some extent as:

• Company pay it's premium itself, there is no burden on employees.

• It is for both top employees and low level employees. So, it deliver message of equality.

• On death of employees, loss incurred by company gets compensate by it. So, there is no huge burden on company, in searching new employee, consequently it is good for financial health of company and for country too.