Corporate-owned life insurance

Insurance

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Corporate-owned life insurance (COLI) is life insurance on employee's lives but owned by the corporation. COLI was originally only used for highly skilled workers or executives, and was purchased by a company to hedge against the valid financial risk of recruiting and training a replacement for key employees. This use is commonly known as Key man or Key person insurance. In the 1980s, as corporations realized the tax advantages of this arrangement, they began writing policies on masses of lower-level employees. When these employees die, the company benefits, and their families receive either a small portion of the proceeds or nothing. These policies can remain in place even after the employee quits or retires. This practice taking out life insurance policies on rank-and-file employees without their knowledge or consent, with the corporation making itself the beneficiary became known derisively as "Dead Peasants Insurance" or "janitor insurance".

Wal-Mart is among those companies under fire from the US Internal Revenue Service and labor organizations for the practice. The IRS considers COLI a tax dodge, and has pursued Dow Chemical, Camelot Music, Winn-Dixie and American Electric Power, among others, to recover tax underpayments.

The practice of using COLI is still widespread, and reportedly so is taking the coverage out on rank and file employees. According to one source, Hartford Life Insurance estimated that one-quarter of all Fortune 500 companies have COLI policies, which cover the lives of about 5 million employees. Wal-Mart alone has policies on 350,000 employees.

As of July 2005, Washington state joined five other American states in outlawing the practice if the employee is not informed. As of May 2005, legislation called the "COLI Best Practices Act of 2005" has been introduced in the US Congress to limit the policies to a certain class of employees, and to mandate the notification and consent of the covered employee.

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