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. Last Updated: 07/27/2016

Making a Killing on Dead Peasants

"So, if there is no obstacle, you might set about preparing a deed of sale," said Chichikov.
"What! A deed of the sale of some dead souls?"
"Well, no!" said Chichikov. "We will write that they are alive, just as it stands recorded on the census list. I am not accustomed to depart in any way from the laws; I suffered for that reason in the service -- but excuse me: Duty is a sacred thing for me; the law -- well, I am dumb in the presence of the law."
- Nikolai Gogol, "Dead Souls"


WASHINGTON -- As every Russian business manager knows, one can do all sorts of neat tricks with insurance policies. Moscow businesses use insurance in tax-avoidance strategies designed by the Big Five accounting firms: Instead of paying "salaries," they pay via tax-free insurance annuities.

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But if you think Moscow is cutting-edge when it comes to insurance games, think again. The Wall Street Journal, in a series of amazing articles over the past two weeks, has revealed that hundreds of leading American companies -- among them Walt Disney, Procter & Gamble, Nestle USA and AT&T -- have bought life insurance on millions of their current and former employees. These employees are neither asked their permission nor informed, and when they die, the companies quietly collect.

This perversion of corporate-owned life insurance, or COLI, has apparently been going on since the 1980s. Corporations privately call it "janitors insurance," or in some cases "dead peasants insurance." ("I want a summary sheet that has ... the Dead Peasants in the third column," says a Journal-quoted memo from the insurance consultants for the grocery store chain Winn-Dixie.)

It used to be illegal in America to wager in this way against the life of another. Anyone buying life insurance for someone else had to demonstrate an "insurable interest" -- some sort of close relationship. But lobbyists in the 1980s got states to soften those rules, and now companies can place a bet against anyone who darkens their door, even employees who work barely a few months. In the state of Georgia, corporations can even bet against the spouses and children of current and former employees.

Naturally, janitor's insurance means keeping track of people for years or even decades after they've quit. So companies assemble massive documents known as "death runs" that list the names, ages and Social Security numbers of workers, and the amount to collect upon death.

In some cases, employees are offered a modest life insurance benefit for free -- but aren't informed that the company stands to benefit far more. Wal-Mart stores offered free life insurance of $5,000 to about 350,000 workers in the 1990s, without mentioning that Wal-Mart would collect many times that amount. In other cases, companies say nothing at all, just quietly buy the policy and update the death runs.

The Journal articles (search for "dead peasants" or "janitors insurance" on wsj.com) offer amazing anecdotes, like the one about the employee who contracted Lou Gehrig's disease and asked her company for help buying a $5,000 wheelchair so she could go to church. She was denied ("it's not covered"), died and enriched the company by $180,000. Or the musician who worked briefly at a music store, left, died, and yielded a dead peasant windfall of $339,302 -- of which $168,875 was used for "executive compensation," but that's another story.

Matt Bivens, a former editor of The Moscow Times, is a Washington-based fellow of The Nation Institute [www.thenation.com].