Editorial: Death Benefits
In Uncommon Sense (April 2002) Andy Magee, senior consultant with the Bourton Group, wrote, "Every business has its superstars. What happens when a bus hits a superstar? No one wants to think about it but there is a reason why insurance companies sell key-man insurance."
Even so, Magee pointed out, an insurance settlement doesn¿t replace the experience and expertise lost when a superstar dies. Let¿s examine key-man insurance, or company-owned life insurance (COLI). Consider, for example, General Electric during Jack Welch¿s tenure. Like him or not, and you¿ll find many in each camp, there¿s no doubt about GE¿s performance on his watch. Which leads to the question of whether any amount of money per se would have replaced Welch¿s leadership at GE.
One could argue that an insurance settlement will replace some profits foregone while an outstanding leader is replaced. It might even pay the recruitment costs. That may be a valid argument in the case of a CEO. But in a series of articles appearing recently in The Wall Street Journal, Ellen E. Schultz and Theo Francis report that some companies have been taking out COLI policies on a wide range of their employees for years. Because the insured employees often include the company janitors, these insurance policies have come to be called janitors insurance.
Whatever one calls them, Schultz and Francis point out that these COLI policies are a lucrative source of revenue because they provide tax-free investment buildup for the companies and provide tax-free death benefits when the workers, former employees and retirees die.
In an on-line poll, The Wall Street Journal asked: "Should companies be allowed to insure employees¿ lives without their knowledge?" The poll was open for almost 3 days, and 75 percent of the 802 respondents voted no. Not all of the respondents posted comments, but those that did made some valid points, mostly against the practice. You can read all of them at http://online.wsj.com/public/us under the Question of the Day link. One respondent suggested that a death benefit payable to your employeror even a former employer in some casesupon your demise is ghoulish.
Schultz and Francis say that state insurance codes currently provide little help for workers who want answers about whether a company has insurance on their lives. That could change if legislation introduced by Rep. Gene Green (D-Texas) passes. This legislation would force companies to tell employees, former employees and their families if the companies have taken out insurance policies on their lives, and to disclose the amount of each policy and the insurer.
Janitors insurance is immoral and despicable. When you strip away the fancy accounting language, it¿s nothing more than a price on an employee¿s head.