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(Zero Hedge)   Banks have $680 BILLION dollars of life insurance on their employees, payable only to the banks, not family. When asked about details the federal regulators claim "trade secrets"   (zerohedge.com) divider line 37
    More: Scary, bankers, national banks, suspicious death, payable, Fifth Third Bank, bank holding companies, separate account, Wachovia  
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1281 clicks; posted to Business » on 30 Apr 2014 at 10:03 AM (43 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



37 Comments   (+0 »)
   
View Voting Results: Smartest and Funniest
 
2014-04-30 09:29:26 AM  
 
2014-04-30 10:12:11 AM  
Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"
 
2014-04-30 10:16:18 AM  

Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"


Actually, it's a tax dodge.  Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed.  So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.
 
2014-04-30 10:20:32 AM  

Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"


A sports franchise invests a quarter billion dollars in a player with a commensurate up front signing bonus.  Teams already take catastrophic medical insurance out to cover the contract in case of career ending injury, so why not life insurance to cover the team incase of life ending injury?
 
2014-04-30 10:24:22 AM  

Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"


The idea is that you're so important that your death could adversely impact profit in some way.  I doubt that the "Client Software Technician" had a corporate life insurance policy.  Condolences nonetheless.

In general, we've got a "shocking, outrageous, unbelievable" story from Zerohedge that's chock full of paragraphs of words and facts and short on key questions that would help us evaluate the "outrageousness" of these disparate facts.

1.  Is this type of compensation out of line with international banks?
2.  Is this type of compensation out of line with other industries.
3.  Why are three suicides and two medical related deaths in the past 6 months in corporations that employe tens of thousands of people "a statistical rarity"?

I'm mostly surprised that they didn't try to tie this to why you need to invest in gold.
 
2014-04-30 10:29:51 AM  

Rapmaster2000: 3. Why are three suicides and two medical related deaths in the past 6 months in corporations that employe tens of thousands of people "a statistical rarity"?


The banks are sooooo evil that they are suiciding their employees in a thinly vailed attempt at insurance fraud.
 
2014-04-30 10:35:49 AM  
I believe Intel did this in the early 2000's when I was there. Not sure if they still do it now.
 
2014-04-30 10:47:56 AM  

Saiga410: Rapmaster2000: 3. Why are three suicides and two medical related deaths in the past 6 months in corporations that employe tens of thousands of people "a statistical rarity"?

The banks are sooooo evil that they are suiciding their employees in a thinly vailed attempt at insurance fraud.


1. I thought life insurance doesn't pay out for suicides.
2. Why shouldn't a company take out a LI policy on employees? The employee doesn't lose a dime, and while I don't think the company should be able to take out a policy without notifying you (if only because your personal information has been shared with a third party), I do think, as a practice, it's creepy as hell.
3. They should start taxing nonfamily third-party insurance. I shouldn't get to reduce my tax liability if I take out policies on all of my neighbors, simply because there's no reason to incentivize such conduct.
 
2014-04-30 11:12:53 AM  

Dr Dreidel: Saiga410: Rapmaster2000: 3. Why are three suicides and two medical related deaths in the past 6 months in corporations that employe tens of thousands of people "a statistical rarity"?

The banks are sooooo evil that they are suiciding their employees in a thinly vailed attempt at insurance fraud.

1. I thought life insurance doesn't pay out for suicides.
2. Why shouldn't a company take out a LI policy on employees? The employee doesn't lose a dime, and while I don't think the company should be able to take out a policy without notifying you (if only because your personal information has been shared with a third party), I do think, as a practice, it's creepy as hell.
3. They should start taxing nonfamily third-party insurance. I shouldn't get to reduce my tax liability if I take out policies on all of my neighbors, simply because there's no reason to incentivize such conduct.


While insurance interest is dubious in these cases, the reason banks do it is for the cash value growth inside the policies, and the safety of the investment relative to investing in the markets directly or in real estate (or in, you know, actually making loans and other bank stuff).
There's a huge market for these products and a lot of insurance agents are making a killing selling these huge policies.
 
2014-04-30 11:14:37 AM  
Wait, I thought employees were expendable, and that we should all be grateful to have a job.  So now it turns out we're so valuable to the company that they need to be compensated if we die?

I'm confused.
 
2014-04-30 11:15:03 AM  
I've never really understood why this is supposed to outrage me. A knowledgable worker has a certain amount of value to a company. If that worker dies, not only will the company incur the costs associated with rehiring and/or retraining, that worker may even permenantly remove certain skillsets and knowledge from the company.

As long as the company can prove that the employee really does have the value associated with the policy, what, exactly, is the problem? I do agree that they should have to inform the emlpoyee of the policy, but other than that I don't really know why I'm supposed to care about this "problem"?

/ also... Zerohedge... lolno
// oh, I'm worth a $2,000,000 life insurance policy am I?
/// let's talk about my next raise then...
 
2014-04-30 11:26:59 AM  

bhcompy: Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"

A sports franchise invests a quarter billion dollars in a player with a commensurate up front signing bonus.  Teams already take catastrophic medical insurance out to cover the contract in case of career ending injury, so why not life insurance to cover the team incase of life ending injury?


to insure someone or something, you need an insurable interest.

the person on the other side of the contract has an insurable interest that you perform your part of the contract.  death generally gets in the way of performance, so the insurable interest is insuring against failure to perform due to death
 
2014-04-30 11:31:35 AM  

Dr Dreidel: 1. I thought life insurance doesn't pay out for suicides.


depends on the policy.  the people who provide me with malpractice insurance were trying to sell me life insurance, and they said they would even waive the 2 year suicide exemption if i signed up now.

i said, wtf?
 
2014-04-30 11:34:02 AM  

Walker: Wal-Mart used to do the same thing with their employees. "Dead Peasant insurance" it's nicknamed.


As disturbing as that is, that is the most brilliantly named thing i have ever heard of.
 
2014-04-30 12:17:07 PM  
So just remember when you yell "Jump farkers, Jump!" you may actually be helping the banks bottom line.
 
2014-04-30 12:22:49 PM  

Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent?


As the Consumerist article in Walker's post says, only six states allow that, and in other states the employee must be notified or even has to give permission.  I was working for a major CA bank in 2002 and one of my older co-workers came to me (I was the roving investment/insurance sales guy) and said, "why on earth does the bank want to take out a policy on me, and why should I agree to do it?"  I explained the Dead Peasants thing and she decided not to do it.
 
2014-04-30 12:27:13 PM  

Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"


It is called Key Man insurance and it should be taken out when your key man getting hit by a beer truck would cause a business disruption and loss of income for the business. It should be part of all businesses contingency and succession planning.
 
2014-04-30 01:01:55 PM  
Do you know what it would cost to replace an employee? They have time and money invested in you, from your recruitment to your latest workplace sexual harassment seminar. It adds up.

Also, they are in a field where screw-ups have a history of causing massive losses and rashes of suicides. It's a good hedge for the next black swan. They might not be able to predict which bad strategy is going to ruin them next time, but they know at least a few employees will be cashing in their life insurance the hard way.
 
2014-04-30 01:23:56 PM  

Dr Dreidel: They should start taxing nonfamily third-party insurance. I shouldn't get to reduce my tax liability if I take out policies on all of my neighbors, simply because there's no reason to incentivize such conduct.


Or at least make remove the deduction on premiums up to the amount of payouts, which would remove the incentive to do this on a massive scale, and leave it as a possibility for people who are actually critical to the business.
 
2014-04-30 01:27:39 PM  
My roommate often gets blind drunk and sustains moderate physical injuries.  I've been thinking about taking out a life insurance policy...

Am I a horrible person or is this just prudent financial planning?
 
2014-04-30 01:44:49 PM  
Every time I forget what a shiathole Free Republic is, I go back and remind myself: http://www.freerepublic.com/focus/news/666837/posts
 
2014-04-30 01:45:30 PM  

Fark like a Barsoomian: Every time I forget what a shiathole Free Republic is, I go back and remind myself: http://www.freerepublic.com/focus/news/666837/posts


What I'm trying to say is, go down a bit and read the comments.
 
2014-04-30 01:50:02 PM  
Claiming "trade secrets" is pretty much like saying "for reasons"
 
2014-04-30 02:01:12 PM  

Teaser: Claiming "trade secrets" is pretty much like saying "for reasons"


It is a trade secret. You don't want your competitors to know who your vital employees are or how much you value them, least they target them for recruitment.
 
2014-04-30 03:20:48 PM  
Older IT workers should be embracing this, bring it up at your next job interview when they ask what you bring to their web 2.0 AaaS cloud start up.
 
2014-04-30 03:30:47 PM  
It costs a company money to hire and train a replacement employee. There is insurance on me at my firm and it is there to cover the buyout of my interest in the firm in the case of my untimely demise so they don't end up partnered with my heir(s)
//There can be a business reason for such a policy but there is a lot of cases where it appears mgmt is just gambling on the lives and taking advantage of the relaxed underwriting you can get under group insurance.
 
2014-04-30 04:32:28 PM  
While I understand the reasoning, I still can't totally buy it. There are myriad reasons how/why an employee could/would (suddenly) leave. Do companies take out "Lottery Winner" insurance or "caught snorting coke off the underage intern's ass" insurance as well?
 
2014-04-30 04:37:48 PM  

Mr. Eugenides: Actually, it's a tax dodge. Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed. So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.


Help me understand this....

Suppose I earn $100 million in taxable income this year from my job as a  male prostitute.  I spend it all on life insurance premiums on hundreds of thousands of random strangers.  At the end of the year, enough of the strangers have died to earn me $85 million worth of payouts from the insurance companies.

When I do my taxes, I declare 100M-100M = 0$ worth of taxable income, pay $0 in taxes, and enjoy my $85M legally taxfree?
 
2014-04-30 05:10:42 PM  

It's Me Bender: Mr. Eugenides: Actually, it's a tax dodge. Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed. So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.

Help me understand this....

Suppose I earn $100 million in taxable income this year from my job as a  male prostitute.  I spend it all on life insurance premiums on hundreds of thousands of random strangers.  At the end of the year, enough of the strangers have died to earn me $85 million worth of payouts from the insurance companies.

When I do my taxes, I declare 100M-100M = 0$ worth of taxable income, pay $0 in taxes, and enjoy my $85M legally taxfree?


That's pretty much it.  But you'd need to be a C-Corp and this would only eliminate your corporate tax burden.  As an individual taking a salary or dividends from that $85 million, you'd still have a personal tax liability, but you'd have $85 million to pay personal taxes on instead of $80 million.
 
2014-04-30 08:52:25 PM  

Mr. Eugenides: It's Me Bender: Mr. Eugenides: Actually, it's a tax dodge. Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed. So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.

Help me understand this....

Suppose I earn $100 million in taxable income this year from my job as a  male prostitute.  I spend it all on life insurance premiums on hundreds of thousands of random strangers.  At the end of the year, enough of the strangers have died to earn me $85 million worth of payouts from the insurance companies.

When I do my taxes, I declare 100M-100M = 0$ worth of taxable income, pay $0 in taxes, and enjoy my $85M legally taxfree?

That's pretty much it.  But you'd need to be a C-Corp and this would only eliminate your corporate tax burden.  As an individual taking a salary or dividends from that $85 million, you'd still have a personal tax liability, but you'd have $85 million to pay personal taxes on instead of $80 million.


Seems like a horrible bet, considering how unlikely the $85M payout is.  Better to just keep (and pay taxes on) the $100M.
 
2014-04-30 09:37:22 PM  

D135: My roommate often gets blind drunk and sustains moderate physical injuries.  I've been thinking about taking out a life insurance policy...

Am I a horrible person or is this just prudent financial planning?


I was thinking of taking out an insurance policy on Cliven Bundy.
 
2014-04-30 10:47:18 PM  

Yankees Team Gynecologist: Mr. Eugenides: It's Me Bender: Mr. Eugenides: Actually, it's a tax dodge. Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed. So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.

Help me understand this....

Suppose I earn $100 million in taxable income this year from my job as a  male prostitute.  I spend it all on life insurance premiums on hundreds of thousands of random strangers.  At the end of the year, enough of the strangers have died to earn me $85 million worth of payouts from the insurance companies.

When I do my taxes, I declare 100M-100M = 0$ worth of taxable income, pay $0 in taxes, and enjoy my $85M legally taxfree?

That's pretty much it.  But you'd need to be a C-Corp and this would only eliminate your corporate tax burden.  As an individual taking a salary or dividends from that $85 million, you'd still have a personal tax liability, but you'd have $85 million to pay personal taxes on instead of $80 million.

Seems like a horrible bet, considering how unlikely the $85M payout is.  Better to just keep (and pay taxes on) the $100M.


Actually it's pretty safe bet as long as the pool of insured employees is large enough.  If you have 100 employees your variance on how many die in a year is going to be very high, but if you have 10,000 employees the death rate is going to be pretty consistent from year to year.  Which is why you see companies like Walmart or very large banks using this loophole.
 
2014-04-30 11:43:09 PM  

Nexzus: While I understand the reasoning, I still can't totally buy it. There are myriad reasons how/why an employee could/would (suddenly) leave. Do companies take out "Lottery Winner" insurance or "caught snorting coke off the underage intern's ass" insurance as well?


My bosses all the way through VP are in the lottery pool just in case.  Director has a policy written up that says if the pool hits, the first call is to the VP of HR telling her to get her check book down to our floor because the company is going to need retention bonuses or be ready to eat some major fines when the company misses regulated deadlines because the old staff is snorting blow on a beach somewhere.

Also, we don't hire minors to be interns.
 
2014-05-01 12:06:07 AM  
Once again, insurable interest is the key.  Companies can take it out on certain employees that qualify as "key".  You can't just take a policy out on any old person, even WITH their consent.  This is specifically labeled as 'gambling' and illegal.  Also, for company-owned policies the premiums are deductible, but payouts are taxed.  For personal stuff, the premiums are NOT deductible, but the payout is tax free to a named beneficiary.
 
2014-05-01 01:37:53 AM  

Mr. Eugenides: Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.

"Who had Roberts by car accident his month?"

Actually, it's a tax dodge.  Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed.  So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.


Are you the key master?
 
2014-05-01 07:39:50 AM  

Mr. Eugenides: Yankees Team Gynecologist: Mr. Eugenides: It's Me Bender: Mr. Eugenides: Actually, it's a tax dodge. Money spent on insurance premiums is deductible and income from insurance settlements is non-taxed. So if I can get 85 cents on the dollar through insurance payments and the tax rates are 20% it's economically better to lose the 15 cents to the insurance company rather than the 20 cents to the government.

Help me understand this....

Suppose I earn $100 million in taxable income this year from my job as a  male prostitute.  I spend it all on life insurance premiums on hundreds of thousands of random strangers.  At the end of the year, enough of the strangers have died to earn me $85 million worth of payouts from the insurance companies.

When I do my taxes, I declare 100M-100M = 0$ worth of taxable income, pay $0 in taxes, and enjoy my $85M legally taxfree?

That's pretty much it.  But you'd need to be a C-Corp and this would only eliminate your corporate tax burden.  As an individual taking a salary or dividends from that $85 million, you'd still have a personal tax liability, but you'd have $85 million to pay personal taxes on instead of $80 million.

Seems like a horrible bet, considering how unlikely the $85M payout is.  Better to just keep (and pay taxes on) the $100M.

Actually it's pretty safe bet as long as the pool of insured employees is large enough.  If you have 100 employees your variance on how many die in a year is going to be very high, but if you have 10,000 employees the death rate is going to be pretty consistent from year to year.  Which is why you see companies like Walmart or very large banks using this loophole.


So even WalMart has 10k "key" insurable employees?

I can see how this would have tax benefits, just not enough to be the only or even primary reason to do this.
 
2014-05-01 10:22:39 AM  

Dr Dreidel: Saiga410: Rapmaster2000: 3. Why are three suicides and two medical related deaths in the past 6 months in corporations that employe tens of thousands of people "a statistical rarity"?
The banks are sooooo evil that they are suiciding their employees in a thinly vailed attempt at insurance fraud.

1. I thought life insurance doesn't pay out for suicides.
2. Why shouldn't a company take out a LI policy on employees? The employee doesn't lose a dime, and while I don't think the company should be able to take out a policy without notifying you (if only because your personal information has been shared with a third party), I do think, as a practice, it's creepy as hell.
3. They should start taxing nonfamily third-party insurance. I shouldn't get to reduce my tax liability if I take out policies on all of my neighbors, simply because there's no reason to incentivize such conduct.


Most good life insurance companies will pay out for suicide, but not until a certain number of years have passed from being issued.

You also can't take out a policy on your neighbors, just as banks can't take out policies on their employees without the employees' consent. The Insured always has to sign the forms along with the Owner/Applicant. There must always be an Insurable Interest.

Of course, that doesn't preclude shady banks from getting into bed with shady life insurance companies.

Galen_Rasputin: Prophet of Loss: Name one legitimate instance when someone should be able to take life insurance out on your without your knowledge or consent? It perverts the entire concept and turn employee's misfortune into an executive office pool.
"Who had Roberts by car accident his month?"

It is called Key Man insurance and it should be taken out when your key man getting hit by a beer truck would cause a business disruption and loss of income for the business. It should be part of all businesses contingency and succession planning.


Key Man insurance is different than BOLI or COLI insurance (Bank or Corporation Owned Life Insurance). Key Man insurance only applies to the founders, owners, or highly experienced managers of a business whose death would impact the business. As Galen_Rasputin says, it's a useful thing for many businesses to have.

BOLI/COLI plans are meant as informal long term financing tools for employee benefit obligations such as nonqualified retirement plans, life insurance and/or health care plans. It's an attractive option for banks to use because of the tax-deferred cash value increases and the tax-exempt death benefits.

In any case, the Insured/employee definitely DOES need to give consent, and in fact there are many other stringent safeguards and regulations in place to prevent abuse of such policies. In some cases, even, the bank or company can transfer ownership of the policy to the Insured and their family upon retirement or when the policy becomes Paid-Up. There are lots of options that are good for both the employees and the banks.

/All of this doesn't mean I agree with the practice--I abhor our banking system--but them's the facts, and it's not always a bad thing.
 
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