Your Employer Can Make Money on Your Death

Date: October 1, 2014      Publication: Bottom Line Personal      Source:  Michael D. Myers, McClanahan Myers Espey      Print:

Will your employer collect on a life insurance policy when you die? Employers have taken out billions of dollars’ worth of policies that name the employers as the sole beneficiaries when covered employees die. These so-called company-owned life insurance (COLI) policies, also known in the industry as “dead peasant” policies, cover not just executives but employees at all levels, although a patchwork of rules in various states limit who can be covered in new policies to varying degrees and provide certain rights to the employees.

Even if you leave the company, the employer might continue to pay premiums and collect when you die. And you might not even know about the policy. In 2008, the widow of a bank employee in Houston discovered by accident that the bank had taken out $4.7 million worth of life insurance on her ailing husband several months before he was fired. The widow settled the case with the bank for an undisclosed amount.

What to do: Check with your state insurance department about what your state’s rules are. Ask your company whether it has an insurance policy on you. If your employer asks you to sign a consent for it to take out a COLI policy, consider whether you feel it is ­appropriate.


Source: Michael D. Myers, a principal at the law firm McClanahan Myers Espey in Houston. He has handled eight COLI class-action lawsuits.