What Does Dead Peasant Insurance Mean?
Dead peasant insurance refers to life insurance policies purchased by corporations on large numbers of low-level employees. The corporation is the named beneficiary of such policies, meaning that it gets the policy payout if the employee dies. The employee's family does not receive any funds from these policies. In the past, companies purchased this type of insurance without the knowledge or consent of the employees.
To critics, it appeared companies were profiting from the deaths of wage workers, and "dead peasant insurance" is a pejorative term originating from the widespread criticism of the practice. Workers filed lawsuits against some of the companies, and federal regulations now limit company-owned life insurance policies.
Different Than Employer-Subsidized Life Insurance Benefits
Dead peasant insurance is not the same as an employer-subsidized group life insurance policy in which employers contribute to life insurance premiums for their employees. These subsidized policies are simply employee benefits and are similar to employer-subsidized health insurance.
Employees consent to an employer-subsidized life insurance policy and choose the beneficiary. In contrast, a company purchases dead peasant insurance without the employee's knowledge, and the company is the only beneficiary.
Why Corporations Purchase Life Insurance on Their Employees
Corporations that purchased so-called dead peasant insurance were likely attempting to benefit from a tax loophole. In most cases, their primary intention was not to benefit from employee deaths. However, as the beneficiaries of these policies, companies did receive the payout when an employee died.
Sometimes, an executive or essential employee is vital to a company's operations, and their death would negatively impact operations or profits. In such cases, the company may have a legitimate interest in purchasing life insurance on the employee. Such a policy can help a company stay afloat or transition in the event of an essential employee's unexpected death. This type of employer-owned policy is not known as dead peasant insurance but is sometimes called key person insurance.
What Companies Have Dead Peasant Insurance?
In the 1980s and 1990s, many large companies, including Walmart and Winn-Dixie, purchased life insurance policies on tens of thousands of low-level employees. Today, virtually no corporations within the United States have dead peasant insurance policies because federal law eliminated the tax benefits. However, many large and small companies purchase insurance policies on their executives or other key employees.
Can My Employer Take Out a Life Insurance Policy On Me?
The Pension Protection Act of 2006 regulated employer-purchased life insurance policies. Companies only receive tax benefits for life insurance policies on employees in top positions or who are in the company's top 35% of earners. Employees must receive written notice that their employer intends to purchase a policy, and the employee must consent. If your employer has asked to take out a life insurance policy on you, you have the right to refuse consent without retaliation.