I am watching a report right now on CNN about how WalMart took out life insurance policies on its employees, and collected in some cases when the wage slave croaked.
Can someone take out a life insurance policy on someone I have no connection with? Say someone has been having a great couple of years on the SDMB Celebrity Death Pool, and I decide to put some money on that horse(s), would that be legal?
Note: I don’t actually intend to do it, I just want to know if it is legal.
The principle where I come from - and I believe it’s the general rule in the industry (which I’m loosely connected with) - is that you must actually have some interest in whether the person lives or dies; one instance would be a provider, another (I guess) is an employee, presumably on the grounds that as the employer you would suffer inconvenience or loss if the employee died as you would lose their services for the time it took you to find a replacement.
With any type of insurance you need what is called insurable interest. What is II?
I own a car, if it gets totaled I lose money. That is an insurable interest. However if your car gets totaled (not from an accident that is my fault) I suffer no loss and have no insurable interest. I cannot buy insurance on your car, or house for this reason.
With life insurance II is a little more esoteric. Everyone has an insurable interest in their own life. Fine
What about other people’s lives? I have an insurable interest in my wife’s life as her death will cause me financial hardship. Pretty easy to understand.
If you and I were in business together I would have an insurable interest in your life, as if you die, I need to buy out your survivors so I can continue the business. Again not too hard to understand.
Now let’s suppose that our company has an ace engineer. Scotty the engineer is responsible for 60% of the company designs. if Scotty dies will there be a financial hardship on the company? Yes because Scotty is what is called a key man. he is key to our profits, and if Scotty takes a dirt nap we are screwed. So you and I can take a policy out on Scotty’s life so if he kicks we get money to help us find a Jordy.
What WM has done is take this key man coverage and applied it to people that clearly not key to WM’s profits. You would be hard pressed to make an argument that if Juan the janitor kicks it would have a negative effect on WM’s profits.
Scummy? you bet.
Legal? Yes as far as I can tell.
How far can I stretch that interest?
Will I suffer if the Pope croaks? How much is my religious stability worth?
Is this why Wal-Mart hires all those elderly people as greeters?
What financial loss will you suffer if the pope takes a dirt nap? :dubious:
The loss of wages from all the grieving I’ll have to do, of course.
Way back when I studied underwriting (part of the actuarial exams), “insurable interest” wasn’t well defined, nor a legal term, but a term used within the insurance industry. Each company set its own standards. A typical example was from long ago (early 1900s?) of an aunt who bought life insurance on her nephews, and they died under mysterious circumstances – the aunt was tried for murdering them for the insurance money.
No insurance company wants to be party to such a situation, and hence the insurance company needs to convince itself that (a) the person buying the insurance (or the beneficiary) has an “insurable interest” and (b) that the amount of insurance is a reasonable reflection of that interest.
So, in the car example, if you have a 1990 clunker and try to buy a million dollars worth of insurance on it, you’ll be turned down. They don’t want the car reported “stolen,” or being smashed by unknown vandals with sledge hammers overnight, or… They’ll insure a car for replacement value.
Similarly, an adult child buying a million-dollar policy on a parent who is retired and has no income other than social security… wouldn’t get very far. Reasonable amounts for life insurance reflect the loss of future income because the person dies, plus some small add-ons. Insurance isn’t intended to be a financial windfall, but a protection against loss.
Rick has explained very well how a company can have an insurable interest in key employees. This seems a stretch, but I hope the amounts of insurance on the low-level position are fairly small. I’d hate to think of WalMart over-insuring aged employees and then offing them for the $$. Sounds like a plot for MONK, perhaps.
Insurance companies would be happy for you to take out papal insurance because the more insurance you take out, the more money they make. Companies weren’t taking out dead peasant policies for the payout, they were doing it as a tax dodge.
Which is why some states were interested in passing “insurable interest” laws. The dodge loses them tax revenue. What is not clear is if the revenue loss was enough to make it worth it to put a stop to “dead janitor” or “dead peasant” policies, used by far more companies than WalMart.
I’m always somewhat bemused at extreme reactions to this practice, as if it somehow hurts the insured employee, or the employee’s family is entitled to the money. It’s odd, perhaps crass, but if your employer wants to take a policy out on you, which has nothing to do with your stated benefits, and pay the premiums, where’s the injury? And if they are paying the premiums, they get to name the beneficiary. The injured party is the state, through the lost taxes.
Here is a previous thread on the insurable interest doctrine: Insurability - Factual Questions - Straight Dope Message Board
The implication that WalMart did this to make money off the insurance proceeds is laughable and naive. Insurance companies aren’t stupid and don’t write policies unless they are pretty sure they can collect more on premiums than they pay in benefits. As mentioned above it is done for tax reasons.
The argument at hand is whether or not a corporation has an insurable interest in its replaceable employees, and whether or not a particular jurisdiction applies.
To the family of the croakee, it may well seem like a shameless corporation made money off of their demise. This flies in the face of this great country’s core tort notion that relatives and attorneys should be the ones who get to make money off of people who croak, and corporations should be the ones who pay the money.
And these things are very profitable for the insurance companies. Given corporate tax rates, an outfit like WalMart is going to be willing to pay somebody a very handsome profit to get some tax sheltered dollars back, and write off the money payed as an expense.
And here is the story: http://news.tbo.com/news/metro/MGB5SEJVN3F.html
This is the same reason you can’t buy 12 fire insurance polices on your house for its full replacement value, and expect them all to pay if your house burns down.
Actually with estate taxes, this one might fly if the insured’s estate was large enough to warrant such coverage.
What taxes? The premiums for key man coverage are not deductible (at least they weren’t when I was licensed). Life insurance is not considered income in the US.
Insurable interest laws predate dead peasant policies by a looong time.
According to the article I linked to before: “The chief appeal was that interest accrues over time on the money in such policies. When a worker dies, the employer collects without paying taxes on the gain.”
From the same article:
I’ll submit that Wal-Mart does suffer a loss, albeit minor, when the janitor dies.
They may have to waste time calling for an ambulance if he croaks at work. The ambulance may impede traffic into the store. The employees may stand around gawking at revival efforts rather than doing their appointed tasks.
They’ll have to replace him, which burns labor and management hours.
There’s an off chance they’ll wind up having to pay overtime to cover his shift, although given their peculiar institution of keeping most of their workers well under 40 hours, I bloody doubt it.
They’ll have to train the new one. Even if he knows how to clean, it’ll take a few hours training to get him familiar with the store and its routines. There’ll also be paperwork expenses associated with hiring him.
Still, at the outside, what would all of that run?
$200?
$2000?
Find me a company that’ll write me pope insurance.
The age those guys are when they get the job, that could be nearly as much fun as horse betting!
Okay…I’m not arguing that we should be able to take out policies on strangers, but how does this work when a guy has a life insurance policy on his stay-at-home wife or one of his kids? There’s no financial loss there. If pain and suffering is fair game, I get that, but the same could be said for my emotional state when John Lennon died. How do they determine this kind of policy?