Over 100 years ago, the point of COLI was so the ruling class of Russia could “buy” dead feudal serfs who were already included in the previous census. These individuals aimed to acquire collateral to obtain loans so that they could build their property portfolio.
As COLI made its way to the United States, the purpose of its existence changed a bit. Instead of inflating the bank account of the Russian upper class, COLI served to safeguard massive corporations from financial harm.
Still, COLI is geared toward the company as opposed to the employee. As a result, many companies were able to exploit an IRS tax loophole for decades on end. This approach had little to do with caring for employees.
Today, one of the goals of COLI is to protect the company from the calamity of losing a prominent executive. Another COLI aim is to regulate a company’s balance sheet. Although corporations must follow stringent rules and regulations, many continue to take out “dead peasant” insurance policies on as many employees as possible—but only with their consent.
Lastly, because of the investment component, COLI policies help to fund employee benefit and pension plans. Keep in mind that COLI policies aren’t the same as group coverage. Even though they have similar purposes, they’re two separate policies entirely.
Most people find the idea of COLI offensive and morbid. After all, would you like a life insurance policy to be taken out on you for your employer’s gain? Granted, COLI serves a multitude of purposes, but the whole deal is macabre. And that’s just for starters.
Since COLI is frequently used to plump a company’s balance sheet, it creates a moral issue. We’ve watched too many episodes of Law & Order not to consider the ulterior motives of money-hungry people.
For example, who’s to say that a company won’t kill off a few insured employees when the bottom line takes a dip? It’s a gruesome thought to have, but it’s not unrealistic. In 2011, an Ohio oil-change business owner was arrested for allegedly planning a murder-for-insurance scheme.
This situation isn’t something you can merely forget when you’re presented with a COLI consent form.
A chief principle of life insurance is that the policyholder and the beneficiary should have an “insurable interest” in the insured individual. What this means is that the insured isn’t merely a bag of money walking around; they’re human being.
When people lose sight of this concept, Law & Order-type monstrosities happen. In the past, only close blood relatives, important employees, and debtors (up to the amount owed) were considered insurable interests. But in today’s world, the definition is much broader.
Here’s A List Of Companies That Have Dead Peasant Insurance
One of the most infamous cases involving dead peasant insurance was the Wal-Mart scandal. In 2006, it was discovered that Wal-Mart had taken out life insurance policies on its employees, naming the company as the beneficiary. The policies were taken out without the knowledge or consent of the employees, and the company collected $81 million in death benefits when the employees passed away. The scandal led to a public outcry and prompted the passage of the “Dead Peasant” law in several states, which restricts the use of corporate-owned life insurance.
Another major company that has been linked to dead peasant insurance is McDonald’s. In 2002, it was reported that the fast-food giant had taken out life insurance policies on its employees, including low-wage workers, without their knowledge or consent. The company collected millions of dollars in death benefits when some of the employees passed away. The revelation sparked protests and legal action from labor groups and employee advocates.
AIG, the multinational insurance corporation, has also been known to have dead peasant insurance policies. In 2008, it was revealed that the company had taken out life insurance policies on the lives of hundreds of its employees, using the policies as collateral for loans. The company collected more than $500 million in death benefits when some of the employees passed away. The revelation led to public outrage and contributed to the collapse of the company during the financial crisis.
Other companies that have been linked to dead peasant insurance policies include J.C. Penney, Nestle, Dow Chemical, and PepsiCo. These companies have all been accused of taking out policies on the lives of their employees without their knowledge or consent, and collecting large payouts when the employees passed away.