Asymmetrical Information

I saw an NBC hit piece on this and it made no sense until I read your site because they didn't mention anything about the tax benefits.

What I really didn't understand, though, was why people were outraged over it. If I work for Wal-Mart and my employer automatically takes life insurance out on me, how am I harmed by that?

BTW, any idea about what happens in a case where an employee is responsible for the death of an employee? I.e. people workers are going to inevitably die at Wal-Mart due to negligence by agents of that corporation -- do these insurance policies still pay out in such cases?

For the most part, people focus on the death benefit of a life insurance policy. That's as it should be. So I suppose I can see someone concerned that the death benefit constitutes an incentive to kill someone - like the motive in a murder mystery.

Few employees want to understand how important they are. The more we operate in an information economy, the more we must train and develop our workers. The loss of a worker for any reason is an economic loss as well as a personal loss.

COLI and BOLI, however, are primarily investment products, designed around the cash value of the policy. The IRS fixes a ratio of death benefit to contributed cash value of an insurance product, so it is in the company's interests to buy a lot of death benefit. Furthermore, the more people covered by the policy, the more predictable the mortality which, in turn, reduces the mortality expenses to the policy. On large policies like this, the mortality expense is usually negotiated.

After a few years, life insurers tend not to concern themselves with random crimes, suicide, etc. If there were signs that the company was hurting its workers, however, it would certainly void payment under the terms of the policy. The owner cannot kill the insured and get paid legally.

Annuities are also an insurance product developed around predictable mortality rates. As you probably know, they are mostly tax and investment driven. Depending on what kind of annuity it is, you could say the company has an interest in your survival (when the cash value is under water) or an interest in your death (when they are paying out a simple annuity based on life expectancy).

Mortality is highly predictable in large numbers (compared to other risks you could insure), and thereby provides an insurance wrapper for tax deferral without contributing too much volatility to the contract.

The WSJ has been truly awful on employee benefits in general for some time now. They have a reporter, Ellen Schultz, who appears to have gotten on a major "evil corporations" hunt after somebody (disgruntled IBM employees?) sang her a song of woe about the horrors of cash balance pension plans (at least those were the first stories I remember seeing). She had several articles on cash balance plans, then went on to discover that, shockingly, many corporations provide much larger retirement benefits to their executives than they do to people who make less money. There's probably been another topic or two that I'm not remembering right now, and the COLI/BOLI stuff is just the latest installment.

I can't figure out why the Journal keeps printing this garbage. Every one of Schultz's numerous articles on benefits topics has been poorly informed and ridiculously slanted. A reporter with half a clue could produce some good articles on bad policy in the employee benefits world, but Schultz's stuff doesn't cut it by a long shot. Someone needs to inform her that it's not terribly surprising that businesses tend to pay their higher-ups more than their lower-downs, that they try to minimize taxes, and that sometimes they respond to Congress' half-witted efforts to fix perceived problems in ways that Congress didn't necessarily have in mind.

To consider why Janitor's Insurance, or COLI/BOLI can be abused, two points must be considered:
1) For all but very senior level employees, the cost of replacing an employee is small, in most cases it would be under $10,000. Yet very often the COLI/BOLI insurance is for over $100,000 (Wal-mart's waws for $64,000 and covered minimum wage employees), and
2) Insurance is not the equivalent of gambling (At least that is what the U.S. Supreme Court has held). So employers, exploiting the tax advantages of life insurance (which were intended to benefit the bereaved), wager on their employees lives.

Some banks have reported that as much as 35% of their net income comes from this tax dodge/wager on their employees lives.

In many states, the COLI/BOLI tax dodge has only survived because it has been kept secret. That could well change.

and I don't have the words. And, I've written barbie a few where the words are to that same point, yosilogy but although I can hear
music to set them to, contact lens it's nothing solid, or it isn't fully Right. That's shoes weird for me

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