The families never know the policies are in place and typically receive none of the money.
The policies are formally called corporate-owned life insurance policies, or COLIs. But in the insurance industry, they're better known as "dead peasant" and "dead janitor" policies.
Though such policies are not permitted in some states, including Texas, many employers continue to buy them, expecting no one will ever find out. And it's rare that anyone does find out, according to the Chronicle, because there is no way to tell if an employer has taken out a policy on a worker's life.
U.S. Rep. Gene Green, D-Houston, is looking into whether the federal government has the right to require employers to notify employees of COLI policies.
Green told the Chronicle of his concern that an employer may have a disincentive to provide a safe workplace because he would profit from the employee's death.
Though there are no hard numbers, an attorney for the Hartford Life Insurance Co. estimated that one-fourth of the Fortune 500 companies have COLI policies, which cover the lives of between 5 million and 6 million workers.
While COLIs are usually kept under wraps, they have suddenly become the focus in a lawsuit against Wal-Mart, one of Houston's largest employers, and Camelot Music.
Wal-Mart took out about 350,000 life insurance policies on the lives of its employees payable to the company, according to the lawsuit filed by family members of deceased Wal-Mart employees.
Hartford Life Insurance Co. and AIG Life Insurance Co. sold the policies to Wal-Mart. Wal-Mart borrowed money from the insurers to pay the premiums, which the company was able to write off as a business expense on its federal taxes.
Scott Monroe Clearman, a Houston lawyer representing the workers, said those policies are used as an "elaborate tax dodge."
To view the Houston Chronicle article, click here.
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Houston Chronicle shines a light on companies that routinely take out secret life insurance policies on the lives of their low-level employees and collect thousands of dollars when they die.