Employers aren’t just taking life insurance out on key employees anymore. “Dead peasant” life insurance policies are held by employers on employees, of any level, and the employer collects the benefit should the employee die.
Some companies have decided that insurance on employees is a good investment, with interest accruing on the policies and the proceeds being non-taxable. The cash value can serve as loan collateral.
It’s not without its risks and moral gray areas, however. Shady employers could murder employees for the death benefit; an employer in Ohio is on trial now for allegedly hiring a killer to take out a former employee. In Houston, a bank took out two hefty life insurance policies on an employee with brain cancer and then fired him, ending his health insurance coverage. Upon his death, the bank collected a $4 million death benefit.
Federal law now requires employers to obtain employees’ permission before purchasing life insurance policies on them, but it’s unclear how strictly that provision is enforced.