The ethical case for company-owned life insurance

Well, yes; it’s life insurance, and therefore makes sense that coverage is held on the lives of human beings. But the larger point is the uncomfortable factor that accompanies the designation of third-party beneficiaries, those physically and/or emotionally unrelated to the covered individual. It’s one reason for the death of the viatical settlement industry in the 1990s (until it’s rebirth, death and now rebirth again as life settlements).

But just because it’s unpleasant doesn’t mean it isn’t effective, or necessary. A root canal isn’t pleasant, but preferable to gumming baby food. Whatever the moral argument, the simple fact remains that the purchase of life insurance policies by investors provides for end-of-life medication and comfort for the terminally ill, as well as some measure of return for elderly clients who no longer need them. As we all know, if the policies lapse the latter gets nothing, and they get far less if they’re surrendered back to the company than they would from investors.

Which comes around to company-owned insurance, something especially necessary for companies that still offer pensions. Longer life spans necessitate more hedging, one of its many benefits. And it isn’t as if it isn’t regulated. An outgrowth of key man insurance, a provision of the Pension Protection Act requires companies to restrict the practice to insuring only the highest-paid 35 percent of employees, who must give their consent. Indeed, even The Times, who reported the story in what could be argued a negative light, was forced to admit that it too employs the practice. It provides for a cushion against shocks like 2008, and protects against the loss of talent and intellectual capital of critical employees. In other words, it works for all involved, and if it’s freely entered into by all parties, it tough to see the problem.