Forget CDS; Corporations Are Now Taking Out Life Insurance Policies On Employees

Tyler Durden's picture


At the heart of the last financial crisis, some compared CDS to buying home insurance on a neighbor's home and burning it down; it appears the USA has come a long way in the last few years. As NDTV reports, employees at The Orange County Register received a rather unusual request from their employer - Freedom Communications - writing to request workers' consent to take out life insurance policies on them.... But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Because such life insurance policies receive generous tax breaks, they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. But in many cases, companies and banks can use the tax-free gains for whatever they choose, "Companies don't promise regulators they will use it for any specific purpose." Of course, it is the banks that are the biggest utilizers of this. Forget buybacks, just unleash some anthrax to really juice EPS this quarter?


As NDTV reports,

Employees at The Orange County Register received an unsettling email from corporate headquarters this year. The owner of the newspaper, Freedom Communications, was writing to request workers' consent to take out life insurance policies on them.


But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Reporters and editors resisted, uncomfortable with the notion that the company might profit from their deaths.


After an intensive lobbying campaign by Freedom Communications management, a modified plan was ultimately put in place. Yet Register employees were left shaken.

This is not a one-off situation...

Because company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. Banks are especially fond of the practice.


"Companies are holding this humongous amount of coverage on the lives of human beings," said Michael D. Myers, a lawyer in Houston who has brought class-action lawsuits against several companies with such policies.


"Life insurance is one of the ways of strengthening the long-term health of the pension plan and ensuring its ability to pay benefits," Freedom Communications' chief executive, Aaron Kushner, said in an interview.


And because such life insurance policies receive generous tax breaks - the company-paid premiums are tax-free, as are any investment returns on the policies and the death benefits eventually received - they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. Companies argue that if they had to finance such obligations with investments taxed at a normal rate, they would incur losses and would not be able to offer the benefits to employees.


But in many cases, companies and banks can use the tax-free gains for whatever they choose. "If you want to take that money and go build a new bank branch, fine," said Joseph E. Yesutis, a partner at the law firm Alston & Bird who specializes in banking regulation. "Companies don't promise regulators they will use it for any specific purpose."


Hundreds of billions of dollars of such policies are in place, providing companies with a steady stream of income as current and former employees die, even decades after they have retired or left the company.

And it's very unclear just how much of it is going on...

But determining the exact size of the market for corporate- and bank-owned life insurance is impossible. With the exception of banks, companies do not have to report their insurance holdings.

"There is no reliable reporting of the use of who's buying life insurance, of what they're buying it for," said Steven N. Weisbart, chief economist of the Insurance Information Institute.

But the banks are major players in this somewhat ethically challenged 'investment vehicle'...

Bank of America's policies have a cash surrender value of at least $17.6 billion.


If Wells Fargo had to redeem its policies tomorrow, it would reap at least $12.7 billion.


JPMorgan Chase would collect at least $5 billion, according to filings with the Federal Financial Institutions Examination Council.

Forget buybacks, just unleash some anthrax to really juice EPS this quarter? (or encourage a few more suicides?)

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Mon, 06/23/2014 - 15:54 | 4886710 Pheonyte
Pheonyte's picture

What chapter do you file under for moral bankruptcy?

Mon, 06/23/2014 - 15:56 | 4886720 Terminus C
Terminus C's picture

That is Chapter 1 - If You Can't Uphold This Chapter The Rest Is Irrelevant

Mon, 06/23/2014 - 16:01 | 4886736 max2205
max2205's picture

Perfect.... I'd be really nervous if my employee did this.



Mon, 06/23/2014 - 16:12 | 4886794 fonzannoon
fonzannoon's picture

so basically if the gold bugs want hyperinflation they need to commit suicide en masse so the death benefits flood the system with frn's

Mon, 06/23/2014 - 16:14 | 4886806 Terminus C
Terminus C's picture

lol.  Martyrs bitchez!

Mon, 06/23/2014 - 16:18 | 4886823 DeadFred
DeadFred's picture

I'd be more worried if the firm gave me a nail gun as a bonus after taking out the policy

Mon, 06/23/2014 - 16:56 | 4886977 waterhorse
waterhorse's picture


Mon, 06/23/2014 - 17:21 | 4887068 teslaberry
teslaberry's picture

chapter 6 for satan!, plus even chapters are not used! so it's right there waiting for a law to be written. 

Mon, 06/23/2014 - 16:14 | 4886717 Terminus C
Terminus C's picture

Wow, talk about profitable liquidation of employees.

I think it was SD1 mentioning in the post on Germany's gold about the increasingly fuckedupedness of the world on a daily basis, well... frequency seems to be increasing from daily to hourly.

Next up, parabolic FUBAR.

Mon, 06/23/2014 - 17:03 | 4887002 kchrisc
kchrisc's picture

What most don't know is that the brutal murder by the gun and badge thugs of Kelly Thomas was instigated by a local restaurateur The restaurateur had an "arrangement" with the gun and badge thugs over dealing with the homeless in the area--brutality.

Now imagine your life insurance holding employer needing to "down-size." They can lay you off and pay severance/unemployment or have the gun and badge thugs shoot you for "resisting" and brandishing a weapon/cell phone. Instead of paying, they collect.

Mon, 06/23/2014 - 17:32 | 4887101 DetectiveStern
DetectiveStern's picture

Certainly explains why employers want to stress out employees so much with shit pay and shit conditions. 

Mon, 06/23/2014 - 15:57 | 4886723 NotAMathWhiz
NotAMathWhiz's picture

I guess folks are just dying to help their employer's bottom line...


Mon, 06/23/2014 - 15:57 | 4886725 Da Yooper
Da Yooper's picture

Hey I want to take out a life insurance policy on GM

at the rate they are screwing up the vehicles they make it wont

be long before they are room temperature

Mon, 06/23/2014 - 16:01 | 4886733 JRobby
JRobby's picture

Company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. Banks are especially fond of the practice.


Walmart Took Secret Life Insurance Policies Out On Employees, Collected After Their Death



JPMorgan Chase Bets $10.4 Billion on the Early Death of Workers


Mon, 06/23/2014 - 16:02 | 4886740 NOTaREALmerican
NOTaREALmerican's picture

Yeah,  I recall these stories from the housing bubble era.    I guess we're looping back again.

Mon, 06/23/2014 - 16:25 | 4886854 ATM
ATM's picture

It was perfectly legal at the time Walmart did it. An employer has an insurable interest in their employees and suffers a financial loss if the employee dies. for the Walmart employee that loss is small but for the executive who has been with a company for 10-20 years? Higher.

The law today is that the employer must receive an acknowledgement fromt he employee indicating that the EE knows and consents tothe ER buying insurance on them. They don't have to agree but many of these policies are used to fund deferred comp or salary continuation plans, especially in banks.

And the generous tax breaks are nothing more than any person who buys permanent life insuracnce receives - tax deferred cash value growth and possibly a tax-free death benefit when you die (subject to arcane rules that most individuals meet).

Banks generally use insurance as an interest rate game. They can earn more on them than on the BS Tbills they have to buy. Banking regs even state how much of their tier 1 capital can be allocated to life insurance, generally around 25%. That's billions of dollars. You can go look up any baks holdings on the FDIC web site.

Mon, 06/23/2014 - 16:13 | 4886741 Dr. Engali
Dr. Engali's picture

I have it on good authority that corporations are now lobbying to harvest your organs and serve your remains in the company cafeterias as well. That should help drive the bottom line.

Mon, 06/23/2014 - 18:43 | 4887281 sondernauch
sondernauch's picture

Save this in your Told You So file.

Mon, 06/23/2014 - 16:05 | 4886757 Agent P
Agent P's picture

This would be quite profitable in the banking industry recently. 

Mon, 06/23/2014 - 16:06 | 4886758 Haloeffect
Haloeffect's picture

Yet another example of how record corporate profits and exploding government deficits are one and the same.  Don't want to fund employee pensions through earnings? - no problem.  Fund them through unpaid taxes and blame the lazy government workers.

Mon, 06/23/2014 - 16:07 | 4886763 Seasmoke
Seasmoke's picture

Don't ever be worth more dead, than alive.

Mon, 06/23/2014 - 16:20 | 4886833 DeadFred
DeadFred's picture

For some of us alive is just a memory...

Mon, 06/23/2014 - 19:10 | 4887364 I Write Code
I Write Code's picture

An excellent point, but one which should also impact insurance underwriters before they agree to write such policies.

Mon, 06/23/2014 - 16:11 | 4886779 Frank N. Beans
Frank N. Beans's picture

I think employees should have the option to purchase life insurance on their employer's management team (CEO, VPs, boards, etc.) thru their 401K plans.   Fair is fair.

 edit: and then be one of those "pro-active" shareholders I hear about.

Mon, 06/23/2014 - 16:16 | 4886814 Seasmoke
Seasmoke's picture

And I believe they pay out DOUBLE if murdered !!!

Mon, 06/23/2014 - 16:18 | 4886828 0b1knob
0b1knob's picture

Long nail guns!!!!!

Mon, 06/23/2014 - 16:10 | 4886781 ThroxxOfVron
ThroxxOfVron's picture

In the New Normal rank and file Employees are worth much more to thier Employers DEAD than alive.


IF You are worked to death, or die on the job for reasons of distraction, fatigue, low/fudged/fraud in quality control and safety inspections, etc..; -the Upper Management and the Shareholders actually make more money!

So, You just KNOW that workplace safety and Employee health care benefits are soooo important.  /sarc.

Mon, 06/23/2014 - 16:16 | 4886811 Ex Cathedra
Ex Cathedra's picture

What's the corporations' insurable interest in the employees? They keep telling everyone below the C-level that they are expendable, so there's "key employee" insurable interest.

Mon, 06/23/2014 - 16:19 | 4886830 SheepDog-One
SheepDog-One's picture

So then it's perfectly legal to take out life insurance on your employer then....and maybe just innocently leave a nailgun on his desk?

Mon, 06/23/2014 - 16:28 | 4886862 Cthonic
Cthonic's picture

Always be more liquid than your kidneys, and never, ever, be worth more dead than alive.

Mon, 06/23/2014 - 16:28 | 4886864 gcjohns1971
gcjohns1971's picture

Next up...

...the Disappeared.

Mon, 06/23/2014 - 16:43 | 4886929 Phelps
Phelps's picture

Since they are usually doing this as a tax shelter, it's often Universal Life.  That means you don't even need the anthrax.  They can collect on it early.

Mon, 06/23/2014 - 16:54 | 4886963 kchrisc
kchrisc's picture

The DC US is officially the crazy train on the dirt road.

Mon, 06/23/2014 - 16:56 | 4886971 Rainman
Rainman's picture

LOL ... this gives new meaning to the term human resources. Satan Approved I say !

Mon, 06/23/2014 - 16:55 | 4886973 waterhorse
waterhorse's picture

I thought Dead Peasant's Insurance was against the law?

Mon, 06/23/2014 - 17:02 | 4886996 SameAsItEverWas
SameAsItEverWas's picture

Nothing new here.  The death benefit is paid to the pension plan, which pays out survivor benefits.

I thought this place was for free markets!

Mon, 06/23/2014 - 17:22 | 4887067 Mi Naem
Mi Naem's picture

"this place" is for heaving whatever mud might stick on the establishment. 

Truth is defined as statements that further the counter-revolution against the permanent revolution.  

...and the shotgun sings the song.... 

Mon, 06/23/2014 - 17:19 | 4887062 Mi Naem
Mi Naem's picture

Well I just hope our friendly global bankers had policies on all those recently passed suicidal maniacs. 

Mon, 06/23/2014 - 17:20 | 4887063 NoCrazies
NoCrazies's picture

OMG! This must be why all those bankers "Commited Suicide" by Nailguns and jumping off buildings.. To create liquidity for the banks they worked for

Mon, 06/23/2014 - 17:24 | 4887070 Rainman
Rainman's picture

Why not pay employees directly for the right to harvest their organs while alive....let's say $50K cash money for a kidney. Sell it for $100K. A clear moneymaker.

These bastards need to think outside the box.

Mon, 06/23/2014 - 18:05 | 4887192 logicalman
logicalman's picture

Anyone considering starting up a hit for hire to help grow the GDP?


Mon, 06/23/2014 - 18:30 | 4887236 samsara
samsara's picture

Too bad it's too late for the banks to take one on those unfortunate employees that fell from high places to their death.

Mon, 06/23/2014 - 18:41 | 4887265 sondernauch
sondernauch's picture

I saw some YouTubes about American Gypsies. Seems they have struck it rich by taking out insurance policies on each other. I wonder who got the idea from whom.

Mon, 06/23/2014 - 19:07 | 4887356 kellycriterion
kellycriterion's picture

Announcing The Global Life Insurance Free For All. Benefits paid from Earth's resources.

Mon, 06/23/2014 - 19:16 | 4887384 I Write Code
I Write Code's picture

Yeah I remember this as an issue back in 1978, too, but here I am still breathin

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