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LIFE INSURANCE: Betting on the Death of Employees
Friday, Jun. 27, 2014
A controversial business practice is on the rise: employers are taking out insurance policies on the lives of their employees, and when they die, are keeping the payout for themselves. The premiums on the policies, along with the payouts, are tax free — giving corporations an incentive to park their money there. The practice, labeled “dead peasant insurance” by detractors, has been around for some time but is now going mainstream. Of the largest 1,000 companies, over one third have policies worth over $1 billion, and more are being added each year. In 2006, the Pension Protection Act limited the practice to only the highest-paid 35% of employees, and only with their consent, but critics think this isn’t enough. Defenders of the policy argue the practice allows them to cover long-term health care costs, deferred compensation, and pension obligations; although, there is no legal requirement to use the proceeds toward these programs. Are these insurance policies unethical? Is it ghoulish to give the company a stake in the early death of its own employees?
Kirk: I believe this policy violates the rights of the individual. Not only is it bad to give the company a stake in an employee's early death, this is also a violation of the employee’s dignity as a human being. Traditional life insurance provides a valuable service: peace of mind and security for your loved ones. “Dead peasant insurance” does no such thing, and instead is driven purely by profit gains and tax breaks. Shame on the tax code for making this profitable.
Patrick: Often when we deal with large numbers, we tend to dehumanize the individuals in the collective group. For good reason: we don’t have the bandwidth to empathize with large numbers of people. Often insurance policies, like a general’s battlefied calculations, fall into this category. Still there are some fundamental problems here. For one, corporations should be legally bound to directing proceeds to the employee programs mentioned (pension, health care, etc.) as a matter of distributive justice. Second, these policies shouldn’t be tax free. This would inevitably end the practice -- which says a lot.
A Framework for Thinking Ethically (Markkula Center)
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