ABC News seems shocked (shocked, I tell you) to learn from Michael Moore’s new movie that companies routinely take out life insurance policies on their employees and then benefit when they die.
But what I find ironic about this is that what they found shocking was that it was “creepy”, saying “it’s immoral to benefit from your death if I don’t know you.”
Wrong. It makes sense for companies to take out insurance policies on employees, especially if the death of those employees would hurt the company.
But what ABC missed completely is the real reason why this is shocking. It is shocking because it is a corporate tax dodge. Under current tax law (probably written by insurance company lobbyists so they could sell more policies), the payouts from these life insurance policies are tax exempt. Not only that, but companies can borrow money to take out these insurance policies and like any corporate loan, the interest they pay is tax deductible. Even crazier, corporations can collect on policies taken out on people who no longer work for the company.
Companies actually make money taking out policies on their employees. In some cases corporations took out multi-million dollar policies on low-level employees. This is definitely shocking, considering that a 2008 study shows that a majority of companies have used our corporate-friendly tax laws to avoid paying any taxes at all.
If these insurance policies are for the purpose of insuring against a loss of revenue in case of the death of an employee, then the tax laws must reflect this. The payouts from these policies should be taxed as revenue (after all, they are being used to offset a loss of revenue that would be taxable). Not only that, but the insured person must still be an employee, and the payout must reflect the deceased person’s value to the company (say, some multiplier of the employee’s salary).