7 ms·

Morbid as this may be, it's common practice. There was a scandal about it involving Walmart not long ago where they gave absolutely nothing to the family. htt

• harryh 14y ago
  That scandal was retarded. They did it for tax reasons. You can certainly argue that the tax code should be changed, but arguing that the families were somehow entitled to something just because it was called life insurance was ridiculous.
  • eru 14y ago
    What loophole in the tax code makes that behaviour worthwhile?
    • mbrubeck 14y ago
      This doesn't do a very good job of explaining the tax consequences, but: "Wal-Mart, which said it canceled its policies in early 2000 because it was losing money on the arrangement, says the program was intended to reduce its income taxes to help pay rising employee health care costs." -- http://news.tbo.com/news/metro/MGB5SEJVN3F.html http://news.tbo.com/news/metro/MGB5SEJVN3F.html
      • mtr 14y ago
        Over the long term wouldn't a company lose money on life insurance policies such as this? If you are buying insurance then you are betting that you are better at actuary analysis than the insurance company. Insurance companies are for-profit entities. Insurance is useful for protecting against large losses that would impact your solvency, so I don't understand why Wal-Mart would have had these policies in the first place.
        • harryh 14y ago
          Ya, if it was straight up insurance it wouldn't have made sense. The (theoretical) benefit was from some sort of tax thing that I honestly don't understand. Something about borrowing the money to pay the premiums now (so you pay less taxes now) and then ?somehow? not just having to pay the taxes later when the insurance got paid. Or something like that?
        • Evbn 14y ago
          if Walmart actuaries knew that Walmart employees die sooner than non-empoyee peers...
        • slurgfest 14y ago
          In this instance you don't have to beat the insurance company, you only have to beat taxes.
        • deleted 14y ago
          [deleted]
        • darkarmani 14y ago
          You don't have to beat the actuaries. The actuaries just have to take less profit than what you would have paid in taxes for the plans. With perfect prediction (actuary tables), you would break even minus the profit of the insurance company. Since you paid the premiums with before tax money and the benefit is tax free, you make money depending on the relationship between your tax rate and the insurance "tax."
    • timmaxw 14y ago
      I think the loophole was that insurance premiums were tax-deductible, but insurance payouts were not taxed. Wikipedia has an explanation http://en.wikipedia.org/wiki/Corporate-owned_life_insurance#1950s:_Leveraged_insurance http://en.wikipedia.org/wiki/Corporate-owned_life_insurance#..., but I don't fully understand it.
      • droithomme 14y ago
        It's exactly as you say. Let's say you have $1 million in profit this year. You can pay 35% corporate income tax on it, $350,000. Or you could buy $1 million in insurance which is a deductible business expense, pay no taxes at all and have "no profit". Then, as employees die, you collect $950,000 in completely tax free insurance payouts (the $50,000 is the insurance overhead). You just saved $300,000 in taxes and have a $950,000 a year untaxable profit. For tax purposes, your company is unprofitable, but for profit purposes you are doing great.
    • gersh 14y ago
      I think the way it works is the company sets up an offshore subsidiary to provide life insurance to its employees in a low tax jurisdiction. Next, they pay life insurance premiums to the offshore subsidiary, and the offshore subsidiary books the profits on the life insurance policy offshore. For example, suppose they pay $1,000,000 premiums to the offshore subsidiary, and then pay out $800,000 in claims. The offshore subsidiary has a profit of $200,000, and the on-shore company has an extra $200,000 to write off.
    • droithomme 14y ago
      Life insurance premium payments on employees are tax deductible expenses. Life insurance payouts are not considered income and are tax free. It used to make more sense to do this when corporate income taxes were higher since you converted potentially taxable income into a non-taxable expense, that was later collected as an untaxable redemption, minus the insurance company's overheads.
  • jonhendry 14y ago
    They had a financial interest in the deaths of their employees. Bob in Housewares in Dubuque dies in a car accident, and his employer profits. That just creates all kinds of messed up incentives. It's just plain f'ed up. And they weren't just insuring key persons, whose untimely demise could actually result in costs to the company that would be worth hedging against.
• tomkarlo 14y ago
  How is a company buying life insurance policies on employees that pays out to the company (and not their families) in any way comparable to this? Yes, that's common practice. This is not.
• Wingman4l7 14y ago
  Legal? Perhaps. Ethically questionable? Certainly.