7 ms·

Isn't that just life insurance?

by ouid 6y ago

mbg721 6y ago
It sounds like term life for an unusually specific term. But you do typically have to have an insurable interest in order to buy insurance on someone's life.
m463 6y ago
That got ugly too until they prevented people from taking out life insurance on people without their knowledge/consent
- btilly 6y ago
  Concrete example, Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. And then were incentivized to make those conditions worse. See https://www.bankrate.com/insurance/life-insurance/dead-peasant/ https://www.bankrate.com/insurance/life-insurance/dead-peasa... for an overview of current regulations that resulted from that.
  - opo 6y ago
    >...Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. No, Walmart was doing it since they thought the policies would be tax deductible. They ended up losing money and eventually ended up bringing up a case against their insurance companies: >...Discount retailing giant WalMart cannot sue its insurers just because it gambled and lost $1.3 billion on getting a tax break from thousands of insurance policies it took out on employees, according to a brief filed by the insurers in the Delaware Supreme Court. >WalMart is contending in an appeal that it was entitled to rely on its expert insurance brokers to warn the company of the inherent dangers of buying COLI policies. WalMart has asked the high court to revive its bad-faith and breach-of-duty claims against its insurers, which the Delaware Chancery Court had dismissed. >Such policies lost their attraction for corporations long ago but disputes over liability for the tax consequences continue for companies in a position similar to WalMart’s. https://www.snopes.com/fact-check/dead-peasant-insurance/ https://www.snopes.com/fact-check/dead-peasant-insurance/
    - btilly 6y ago
      My understanding was based on articles like https://workdayminnesota.org/court-slams-walmarts-use-of-dead-peasant-insurance/ https://workdayminnesota.org/court-slams-walmarts-use-of-dea.... Where Walmart was being sued specifically because there were perverse incentives and what they did was against various state laws. As to your case, Walmart thought that it could deduct the premiums. It turns out that it could not. Walmart also thought that it could create and collect them under Georgia law. It turns out that it could not. Walmart also has been forced to pay families of workers some of the payouts. None of which it expected. All of these things affect how profitable the policy is for Walmart. But they don't change the fact that once the policies are taken out, Walmart has a financial incentive to treat workers poorly. Which is why many states had banned the practice. And is why federal law currently only allows companies to take out life insurance on approximately their most highly paid third of employees. (Who also have to consent to it.) Back to the suit. Walmart sued its insurers in 2002 for fraud for failing to explain these risks. The brief quoted in Snopes is as filed by the insurers in 2005. They lost that judgement, but the case continued on. As of 2009, per http://www.contingentfeeblog.com/2009/05/articles/corporate-owned-life-insurance/walmarts-dead-peasant-suit-against-insurers-escapes-the-grave-a-third-time/ http://www.contingentfeeblog.com/2009/05/articles/corporate-..., the Delaware Supreme Court ruled for Walmart a 3rd time. I don't know the final outcome of the case. But it certainly wasn't as open and shut as the insurer's brief made it sound.
      - opo 6y ago
        Thank for adding more info about some of the lawsuits, but you haven't given any evidence for the key claim you made in your original post: >...Concrete example, Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. I have seen no evidence that is why Walmart instituted the corporate policy of buying life insurance on their employees. If any evidence of that sort had come out in the various law suits, it would have made headlines all around the world. Even today many companies buy life insurance on their key employees - that doesn't mean their plan is to treat their key employees so poorly that they have an earlier death.
dragonwriter 6y ago
Yes, insurance in general has this problem if unregulated, hence the evolution of the concept of “insurable interest”. https://en.m.wikipedia.org/wiki/Insurable_interest https://en.m.wikipedia.org/wiki/Insurable_interest

Isn't that just life insurance?

by ouid 6y ago

Isn't that just life insurance?

It sounds like term life for an unusually specific term. But you do typically have to have an insurable interest in order to buy insurance on someone's life.

m463 6y ago

That got ugly too until they prevented people from taking out life insurance on people without their knowledge/consent

btilly 6y ago
Concrete example, Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. And then were incentivized to make those conditions worse. See https://www.bankrate.com/insurance/life-insurance/dead-peasant/ https://www.bankrate.com/insurance/life-insurance/dead-peasa... for an overview of current regulations that resulted from that.
- opo 6y ago
  >...Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. No, Walmart was doing it since they thought the policies would be tax deductible. They ended up losing money and eventually ended up bringing up a case against their insurance companies: >...Discount retailing giant WalMart cannot sue its insurers just because it gambled and lost $1.3 billion on getting a tax break from thousands of insurance policies it took out on employees, according to a brief filed by the insurers in the Delaware Supreme Court. >WalMart is contending in an appeal that it was entitled to rely on its expert insurance brokers to warn the company of the inherent dangers of buying COLI policies. WalMart has asked the high court to revive its bad-faith and breach-of-duty claims against its insurers, which the Delaware Chancery Court had dismissed. >Such policies lost their attraction for corporations long ago but disputes over liability for the tax consequences continue for companies in a position similar to WalMart’s. https://www.snopes.com/fact-check/dead-peasant-insurance/ https://www.snopes.com/fact-check/dead-peasant-insurance/
  - btilly 6y ago
    My understanding was based on articles like https://workdayminnesota.org/court-slams-walmarts-use-of-dead-peasant-insurance/ https://workdayminnesota.org/court-slams-walmarts-use-of-dea.... Where Walmart was being sued specifically because there were perverse incentives and what they did was against various state laws. As to your case, Walmart thought that it could deduct the premiums. It turns out that it could not. Walmart also thought that it could create and collect them under Georgia law. It turns out that it could not. Walmart also has been forced to pay families of workers some of the payouts. None of which it expected. All of these things affect how profitable the policy is for Walmart. But they don't change the fact that once the policies are taken out, Walmart has a financial incentive to treat workers poorly. Which is why many states had banned the practice. And is why federal law currently only allows companies to take out life insurance on approximately their most highly paid third of employees. (Who also have to consent to it.) Back to the suit. Walmart sued its insurers in 2002 for fraud for failing to explain these risks. The brief quoted in Snopes is as filed by the insurers in 2005. They lost that judgement, but the case continued on. As of 2009, per http://www.contingentfeeblog.com/2009/05/articles/corporate-owned-life-insurance/walmarts-dead-peasant-suit-against-insurers-escapes-the-grave-a-third-time/ http://www.contingentfeeblog.com/2009/05/articles/corporate-..., the Delaware Supreme Court ruled for Walmart a 3rd time. I don't know the final outcome of the case. But it certainly wasn't as open and shut as the insurer's brief made it sound.
    - opo 6y ago
      Thank for adding more info about some of the lawsuits, but you haven't given any evidence for the key claim you made in your original post: >...Concrete example, Walmart took out life insurance on its employees because they were betting that their horrible working conditions made people more likely to die than the insurance companies thought. I have seen no evidence that is why Walmart instituted the corporate policy of buying life insurance on their employees. If any evidence of that sort had come out in the various law suits, it would have made headlines all around the world. Even today many companies buy life insurance on their key employees - that doesn't mean their plan is to treat their key employees so poorly that they have an earlier death.

dragonwriter 6y ago

Yes, insurance in general has this problem if unregulated, hence the evolution of the concept of “insurable interest”. https://en.m.wikipedia.org/wiki/Insurable_interest https://en.m.wikipedia.org/wiki/Insurable_interest