What is corporate-owned life insurance or dead peasant insurance?
Corporate-owned life insurance or a dead peasant policy is a growing trend where organizations buy life insurance policies for the top 35% of their employees.
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Jeffrey Manola
Licensed Life Insurance Agent
Jeffrey Manola is an experienced life insurance agent who founded TopQuoteLifeInsurance.com and NoMedicalExamQuotes.com. His mission when creating these sites was to provide online consumers searching for life insurance with the most affordable term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance. Not only does he strive to provide consumers with t...
Licensed Life Insurance Agent
UPDATED: Aug 14, 2024
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Aug 14, 2024
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Corporate-owned life insurance is insurance taken out by companies on their top employees
- Corporate-owned insurance is also known as dead peasant insurance because companies used to take insurance out on their employees without consent
- Dead peasant insurance provides businesses financial security if an employee dies or becomes disabled
Have you ever heard of corporate-owned life insurance or dead peasant insurance? Corporate-owned life insurance is life insurance taken out by companies on their top employees.
In this guide, we’ll look at corporate-owned life insurance, who uses these policies, and the controversy surrounding this growing practice.
How does corporate-owned life insurance work?
Corporate-owned life insurance (COLI), sometimes referred to as “dead peasant insurance,” is a policy type designed to safeguard businesses in the event that a crucial employee dies or becomes incapacitated. This insurance is managed through a corporate-owned life insurance broker, and various corporate-owned life insurance policies are available. To get an estimate or corporate-owned life insurance quote, businesses can consult with these brokers to find suitable coverage.
With this coverage, a corporation acquires and holds a life insurance policy on a key employee, designating itself as the primary beneficiary. This type of policy is often referred to as COLI (Corporate-Owned Life Insurance) and is a form of bank-owned life insurance, where the company benefits from the policy.
COLI can replace lost revenues or expenses after one of the organization’s higher-ups dies. The two types of corporate-owned life insurance are:
- Key person life insurance
- Split-dollar life insurance
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What is key person life insurance?
If a company loses one of its top executives or other valuable personnel, it would suffer irreparable financial losses without key person insurance. Most of these policies are term life insurance plans, though permanent insurance plans are also available. The organization owns this policy, pays the premiums, and receives the payout should something happen to their key person.
The company can use the payout to:
- Cover revenue losses
- Purchase any shares of the deceased in the business
- Make payments on any outstanding loans
- Cover recruitment costs or severance pay
If a key person moves from the business, they can transfer their policy or convert it into a private policy.
Who needs key person insurance?
You already know the basics of dead peasant insurance, but who needs this coverage? Let’s look at some organizations that might benefit from key person life insurance.
Large Businesses & Corporations
Larger companies frequently require business-owned life insurance to safeguard against the unexpected loss of key personnel. If a top executive or a crucial individual with a substantial client base passes away unexpectedly, it could significantly impact the business. Key person life insurance, a type of cash value life insurance, can mitigate these potential losses and is an essential measure for companies taking out life insurance on employees.
Small or Private Enterprises
Small businesses are especially vulnerable to losses because they typically rely on one or two people crucial to day-to-day operations and building relationships with clients.
This is why private enterprises should consider getting key person insurance — so they can have a financial cushion if something happens to one of their key people.
Start-Ups
Early and late-stage start-ups may not have an extensive track record yet, but they certainly have founders or a small group of employees whose expertise is hard to replace.
Although purchasing key life insurance for start-ups can be more complicated due to their lack of history, these policies can still be beneficial.
How to Buy Key Person Insurance
Purchasing key person insurance is similar in many respects to buying life insurance. The main distinction is that while the insured employee will be the subject of a life insurance underwriting process, so too will your business. Before any policy can be issued, the insurer must assess the individual’s risk profile and your company’s.
Financial Underwriting for Key Person Insurance
The underwriter needs to consider many factors, from the company’s remuneration and financial soundness to any other key personnel with coverage and the unique talents, skills, and history of the individual involved.
You’ll need to provide
- Details on the company’s annual sales
- The estimated cost of replacing a vital employee
- The company’s fair market value
- The key employee’s total compensation
- Net business profit
- Tax statements
Then insurers consider all this information, the employee’s health, and the required coverage to determine how much the life insurance policy will cost.
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How much key person coverage do businesses need?
The coverage will depend on your business size and needs. Experts, however, advise having five to ten times their employee’s gross pay covered in life insurance.
Therefore, you’ll want to factor in an employee’s gross pay components. Salary, supplements, equity/stock, expenses spent in relation to business services, and transportation are all part of this calculation.
For instance, if an employee’s salary package totals $100,000 a year, you can look into life insurance policies that cover anywhere from $500,000 to a million.
The Use of Company-Owned Life Insurance Is Rapidly Growing
Companies are increasingly leveraging dead peasant life insurance and other forms of corporate-owned and bank-owned life insurance policies to reap tax benefits and investment returns. This approach, often linked to the benefit of peasant insurance after death, is used to enhance company policy upon death.
The adoption of employer-owned life insurance on employees has been increasing rapidly, with growth reaching $1 billion annually. This trend offers companies enhanced financial security and substantial tax advantages.
This policy type is growing in popularity among companies seeking innovative methods to reduce costs while benefiting from employer-paid life insurance and insurance company-owned life insurance policies.
The Abuse of Company-Owned Life Insurance
Employers have been using dead peasant life insurance policies to their advantage. Companies take out life insurance policies on their employees without them ever knowing. The company then receives compensation if the employee dies instead of their family. Find out if you can buy life insurance for someone else.
Regrettably, some companies exploit a loophole to claim the lump sum payout even after employees have retired or left the company. This unethical practice, often associated with corporately-owned life insurance and found on the list of bank-owned life insurance policies, has sparked significant criticism. Such a morally questionable tactic not only devalues human life but also deprives grieving families of the compensation they rightfully deserve.
Company-Owned Life Insurance Regulations
Company-owned life insurance regulations are pretty specific. For instance, a COLI policy is only offered as an employee benefit to the company’s top 35% of earners.
In addition, if the company decides to purchase such a policy for an employee, they must notify them in writing first and let them know of their desire to insure them and how much coverage would be provided before anything is finalized.
If the company could benefit from the policy in any way, employees must also receive written information about that.
The Dead Peasant Insurance Controversy
The Dead Peasant Insurance controversy was a dilemma for many companies in the 1990s. Corporations were taking out life insurance policies on their entire employee base without the individuals’ consent, making them vulnerable to criticism and backlash.
In 2006, Congress and the Federal Tax Service fortunately intervened to implement restrictions on businesses using COLI and bank-owned life insurance (BOLI) policies. This action also brought attention to the legality of dead peasant insurance practices, such as dead peasant insurance at Walmart.
These modifications restricted tax benefits to just the top 35% of earners, guaranteeing that individuals would be fairly compensated in the event of a tragedy.
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Case Studies: Corporate-Owned Life Insurance (COLI) or Dead Peasant Insurance
Case Study 1: The Unaware Employee
A multinational corporation secretly takes out life insurance policies on all of its employees without their knowledge or consent. The company leverages the policies as investments, benefiting from tax advantages and potential payouts upon the employees’ deaths. When one employee unexpectedly passes away, his family discovers the existence of the policy and questions the company’s motives and ethics.
Case Study 2: The Profit-Driven Corporation
A large corporation deliberately targets employees who are perceived to have significant value to the company. The company obtains life insurance policies on these key employees, ensuring that it will receive substantial payouts in the event of their untimely deaths. The corporation’s primary motivation is to generate profits from the policies, rather than providing genuine financial protection or support to the employees’ families.
Case Study 3: The Ethical Debate
While the company argues that it intends to use the policies to cover the costs associated with employee death, critics raise concerns about the ethical implications and the potential for exploiting employees’ lives for financial gain. This sparks a broader debate on the moral responsibilities of corporations and the need for transparent practices in the realm of corporate-owned life insurance.
Case Study 4: The Employee Advocate
An employee advocacy group discovers that their company has been using corporate-owned life insurance policies as an investment strategy. The group raises awareness among employees about the potential ramifications of such policies, including concerns regarding privacy, consent, and the exploitation of employees’ lives.
Through collective action, the advocacy group pushes for increased transparency, employee consent, and fair treatment in relation to corporate-owned life insurance.
Final Thoughts on Company-Owned Life Insurance
Company-owned life insurance is a great way for businesses to ensure their employees’ financial security and save on taxes.
This type of policy is a great option for start-ups, midsize businesses, and corporations, as it offers much-needed financial protection.
However, companies should always follow the guidelines and regulations set by the Federal Tax Service and Congress to ensure they are not engaging in unethical practices. Companies should also always be transparent with their employees and seek their consent before taking out a policy on them.
Read more: Best Ethical Life Insurance Companies
Frequently Asked Questions
What is dead peasant insurance?
Dead peasant insurance is a term used to describe corporate-owned life insurance plans taken out on employees. Employers receive the payout benefits upon their death.
Is dead peasant insurance legal?
While it’s legal, employers must receive consent from employees before taking out policies. Companies must also adhere to the regulations set by Congress and other government bodies.
What is corporate-owned life insurance or dead peasant insurance?
Corporate-owned life insurance, also known as dead peasant insurance, refers to life insurance policies purchased by organizations for their top employees. The company becomes the beneficiary of the policy and receives the payout in case of the employee’s death.
What is key person life insurance?
Key person life insurance is a policy that companies obtain on their valuable personnel, such as top executives. The organization pays the premiums and receives the payout if something happens to the key person. It helps businesses mitigate financial losses and cover expenses.
How much key person coverage do businesses need?
The coverage needed depends on the size and needs of the business. Typically, experts recommend having five to ten times the employee’s gross pay covered in life insurance. The coverage should account for salary, supplements, equity, and other business-related expenses.
What happens to employer life insurance after retirement?
When an employee retires, the employer typically no longer needs the life insurance policy initially purchased for them. The specifics can vary based on the policy type and the employer’s intentions. In some cases, the policy may be terminated or transferred to the retired employee. For corporate-owned life insurance, often known as key person insurance or dead peasant insurance, the policy usually remains in effect only as long as the employee is active and continues to provide value to the business.
Can companies take out life insurance on employees?
Yes, companies can take out life insurance on employees, particularly those deemed essential to the business. This is often referred to as corporate-owned life insurance (COLI) or key person insurance. The company pays the premiums and is the beneficiary of the policy, receiving the payout if the insured employee dies. This type of insurance helps businesses manage financial losses and cover expenses related to the employee’s death.
Does Amazon have dead peasant insurance?
There is no publicly available information confirming whether Amazon specifically uses dead peasant insurance. However, many large corporations utilize various forms of corporate-owned life insurance to protect against the financial impact of losing key employees. Dead peasant insurance, also known as corporate-owned life insurance, involves taking out policies on employees without their consent, a practice that has faced significant criticism and legal scrutiny.
Does dead peasant insurance still exist?
Yes, dead peasant insurance still exists, though it is now subject to stricter regulations and oversight. This term refers to corporate-owned life insurance policies taken out on employees, often without their knowledge. While still used by some businesses, practices around such insurance have been regulated to ensure transparency and protect employees’ rights.
Is corporate-owned life insurance ethical?
The ethics of corporate-owned life insurance, particularly when referred to as dead peasant insurance, are debated. The primary ethical concern is that companies might take out policies on employees without their knowledge or consent, benefiting financially from their deaths rather than providing support to their families. Ethical practices involve transparency, consent, and ensuring that policies are used to benefit employees or their families, not just the corporation.
Does Walmart have life insurance on employees?
Walmart, like many major corporations, has reportedly utilized different types of life insurance policies for its employees. These policies may cover key personnel to mitigate the financial consequences of their loss. However, specific information regarding Walmart’s life insurance on employees, including whether they engage in practices associated with the Walmart life insurance scandal, is not publicly disclosed.
How does bank-owned life insurance work?
Bank-owned life insurance (BOLI) is a type of corporate-owned life insurance where banks purchase policies on their employees, typically senior executives. The bank is the policyholder and beneficiary, receiving the death benefits and using them to offset expenses or generate tax-advantaged returns. BOLI policies are often used by banks to manage costs and improve financial stability.
How does corporate-owned life insurance work?
Corporate-owned life insurance (COLI) involves a company purchasing and owning life insurance policies on its employees, particularly those considered key to the business. The company is the policyholder and beneficiary, receiving the death benefits if the insured employee dies. This type of insurance is used to mitigate financial losses and cover costs associated with the employee’s death.
Is dead peasant insurance legal?
Dead peasant insurance, or corporate-owned life insurance, is legal but regulated. Companies must comply with laws requiring employee consent and transparency. Regulations often mandate that employees be notified about the insurance policies taken out on them and that only the highest-paid employees are covered to prevent abuse.
What companies have dead peasant insurance?
Many large corporations and financial institutions have historically used dead peasant insurance, though specific details about which companies currently use it can be difficult to obtain. Companies that have used such insurance in the past include those in various sectors, including finance and manufacturing. The use of these policies has been increasingly regulated to ensure ethical practices.
What is COLI insurance?
COLI, or Corporate-Owned Life Insurance, is a type of life insurance policy that companies purchase on their employees, particularly those deemed essential or key to the business. The company is the policyholder and beneficiary, receiving the payout if the insured employee dies. COLI helps companies manage financial risks and cover costs related to the loss of important personnel.
What is corporate-owned life insurance?
Corporate-owned life insurance (COLI) refers to life insurance policies that a company purchases and owns on its employees. The company pays the premiums and is the beneficiary, receiving the death benefits if the insured employee dies. This type of insurance is used to protect against financial losses and cover expenses associated with the death of key employees.
What is dead peasant insurance?
Dead peasant insurance is a term used to describe corporate-owned life insurance policies taken out on employees, often without their knowledge. The company is the policyholder and beneficiary, receiving the payout if the employee dies. The term is controversial due to the ethical implications of companies benefiting financially from employees’ deaths.
Do employees’ family members receive any death benefit with a company-owned policy?
Split-dollar life insurance usually provides a shared death benefit between the employer and the employee’s family, although the split may not be 50/50. On the other hand, key person life insurance allows the company to keep full death benefits.
What are some companies that have dead peasant insurance?
Many large corporations have used or are known to use dead peasant insurance, also known as corporate-owned life insurance (COLI). Examples include major companies like Walmart and Amazon. However, the specifics of which companies use this insurance can vary, and such practices might not always be publicly disclosed.
What is a company that owns a life insurance policy on one of its key employees?
A company that owns a life insurance policy on one of its key employees is typically referred to as having key person insurance or corporate-owned life insurance (COLI). This policy helps the company mitigate financial losses if the key employee dies or becomes disabled. Examples of companies that might have such policies include large corporations and businesses that heavily rely on specific individuals for their operations.
What is the difference between BOLI and IUL?
BOLI (Bank-Owned Life Insurance) and IUL (Indexed Universal Life) are two distinct types of life insurance policies. BOLI is typically used by banks to invest in life insurance policies on their employees, providing them with tax advantages and investment returns. In contrast, IUL is a type of permanent life insurance that offers flexible premiums and benefits tied to a stock market index, allowing for potential cash value growth linked to market performance.
Is there corporate-owned life insurance in Wilmington, MA?
Corporate-owned life insurance (COLI) in Wilmington, MA, refers to life insurance policies purchased and owned by companies in that area. These policies are typically taken out on key employees or executives to protect the company against financial losses in the event of their death or disability.
Upon the death of the insured, what does the primary beneficiary discover?
Upon the death of the insured, the primary beneficiary typically discovers that they are entitled to receive the death benefit from the life insurance policy. The primary beneficiary is designated to receive the payout, which can help cover expenses, losses, or provide financial support.
What is lumberjack insurance?
Lumberjack insurance is a term sometimes used to describe life insurance policies specifically tailored for individuals working in high-risk occupations like lumberjacking. This type of insurance offers coverage for risks associated with dangerous work environments and activities.
What is split dollar life insurance?
Split dollar life insurance is a type of policy where the costs and benefits of the life insurance are shared between an employer and an employee or between two parties. Typically, the employer pays a portion of the premiums, and the employee or another party is entitled to a portion of the death benefit or cash value.
Does Walmart use dead peasant insurance?
There have been reports and allegations that Walmart, like some other large corporations, has used dead peasant insurance or corporate-owned life insurance (COLI) policies on employees. However, specific details about their current practices may not always be publicly available or updated.
What happens when a key employee policy is taken out?
When a key employee policy is taken out, the company purchases a life insurance policy on a key employee, pays the premiums, and becomes the beneficiary of the policy. If the key employee dies or becomes disabled, the company receives the death benefit or payout, which helps cover financial losses and expenses related to their absence.
Who needs key person insurance?
Key person insurance is beneficial for large businesses, small or private enterprises, and start-ups. These policies provide financial protection in case of the unexpected loss of a key employee who is crucial to the company’s operations or client relationships.
Your life insurance quotes are always free.
Secured with SHA-256 Encryption
Jeffrey Manola
Licensed Life Insurance Agent
Jeffrey Manola is an experienced life insurance agent who founded TopQuoteLifeInsurance.com and NoMedicalExamQuotes.com. His mission when creating these sites was to provide online consumers searching for life insurance with the most affordable term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance. Not only does he strive to provide consumers with t...
Licensed Life Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
