The Expansion of Corporate-owned Life Insurance
What are they?
Corporate-owned life insurance (COLI) has been increasing common among companies, infamously earning the nickname “dead peasant insurance” along the way. In this case, employers, usually of large companies, take out life insurance policies on low-level employees and receive payments in the circumstance that the employee dies. They originated when companies engaged in insuring high-level employees. For such positions, turnover is lower and the cost of recruiting new employees and training them is higher. To safeguard against the untimely death of a senior executive, companies would purchase a life-insurance policy as means to hedge their investment in human capital.
In recent years, such policies have extended to lower-level employees as means for firms to take advantage of the tax preference of life insurance.
How to Fix the Problem …show more content…
An old saying is that it is legal to avoid paying taxes, just not evade them. Companies are allowed to reduce the amount of taxes payable to the government through legal means by using the tax code. A plethora of firms use tax havens as a remedy to high taxes and in recent years have found that DPI’s are also useful. Currently, firms are allowed to deduct premiums they pay for life insurance policies from the profits they report. And when an employee dies, the payment they receive from the insurance company is not considered taxable income. Taxing benefits at the same rate as ordinary income would reduce the demand of policies, as they would be seen as less profitable ventures. In addition, I would require the employers to pay part of the money they receive to any spouse or dependent they employee may have. Insurance policies would also be limited to current employees in order to reduce
What are they?
Corporate-owned life insurance (COLI) has been increasing common among companies, infamously earning the nickname “dead peasant insurance” along the way. In this case, employers, usually of large companies, take out life insurance policies on low-level employees and receive payments in the circumstance that the employee dies. They originated when companies engaged in insuring high-level employees. For such positions, turnover is lower and the cost of recruiting new employees and training them is higher. To safeguard against the untimely death of a senior executive, companies would purchase a life-insurance policy as means to hedge their investment in human capital.
In recent years, such policies have extended to lower-level employees as means for firms to take advantage of the tax preference of life insurance.
How to Fix the Problem …show more content…
An old saying is that it is legal to avoid paying taxes, just not evade them. Companies are allowed to reduce the amount of taxes payable to the government through legal means by using the tax code. A plethora of firms use tax havens as a remedy to high taxes and in recent years have found that DPI’s are also useful. Currently, firms are allowed to deduct premiums they pay for life insurance policies from the profits they report. And when an employee dies, the payment they receive from the insurance company is not considered taxable income. Taxing benefits at the same rate as ordinary income would reduce the demand of policies, as they would be seen as less profitable ventures. In addition, I would require the employers to pay part of the money they receive to any spouse or dependent they employee may have. Insurance policies would also be limited to current employees in order to reduce