It has long been common practice for companies to take out insurance on the lives of their CEOs and top executives, to offset the significant cost of replacing them if they die.

1. Michael Rice (48) an assistant manager at a Walmart (Tilton, NH), was helping a customer carry
a television to her car when he had a heart attack and collapsed. He died a week later. An insurance
policy on his life paid out about $300,000. But the money did not go to his wife and two children. It went
to Walmart, which had purchased the policy on Rice’s life and named itself as the beneficiary.
When his widow, Vicki Rice, learned of Walmart’s windfall, she was outraged. Why should the
company be able to profit from her husband’s death? He had worked long hours for the company,
sometimes as much as 80 hours a week. “They used Mike terribly,” she said, “and then they go out and
collect $300,000? It’s immoral.”
According to Mrs. Rice, neither she nor her husband had any idea that Walmart had taken out a
life insurance policy on him. When she learned of the policy, she sued Walmart in federal court,
claiming that the money should go to the family, not the company. Her attorney argued that
corporations should not be able to profit from the death of their workers: “It is absolutely reprehensible
for a giant like Wal-Mart to be gambling on the lives of its employees.”
A Walmart spokesman acknowledged that the company held life insurance policies on hundreds
of thousands of its employees – not only on assistant managers but even on maintenance workers. But
he denied that this amounted to profiting from death. “It is our contention that we did not benefit from
the death of our associates,” he said. “We had a considerable investment in these employees” and
came out ahead “if they continued to live.”
In the case of Michael Rice, the spokesman argued, the insurance payout was not a welcome
windfall but compensation for the cost of training him and, now, of replacing him. “He had been given
quite a bit of training and gained experiences that cannot be duplicated without costs.”
JANITORS INSURANCE
It has long been common practice for companies to take out insurance on the lives of their
CEOs and top executives, to offset the significant cost of replacing them if they die. In the parlance of
the insurance business, companies have an “insurable interest” in their CEOs that is recognized in law.
But buying insurance on the lives of rank-and-file workers is relatively new. Such insurance is known in
the business as “janitors insurance” or “dead peasants insurance.” Until recently, it was illegal in most
states; companies were not considered to have an insurable interest in the lives of their ordinary
workers. But during the 1980s, the insurance industry successfully lobbied most state legislatures to
relax insurance laws, allowing companies to buy life insurance on the lives of all employees, from the
CEO to the mailroom clerk.
By the 1990s, major companies were investing millions in corporate-owned life insurance
(COLI) policies, creating what amounted to a multibillion-dollar death futures industry. Among the
companies that bought policies on their workers were AT&T, Dow Chemical, Nestlé USA, Pitney
Bowes, Procter & Gamble, Walmart, Walt Disney, and the Winn-Dixie supermarket chain. Companies
were drawn to this morbid form of investment by favorable tax treatment. As with conventional whole
life insurance policies, the death benefits were tax-free, as was the yearly investment income the
policies generated.
Few workers were aware that their companies had put a price on their heads. Most states did
not require a company to inform employees when it bought insurance on their lives, or to ask workers’
permission to do so. And most COLI policies remained in effect even after a worker quit, retired, or was
fired. So corporations were able to collect death benefits on employees who died years after leaving the
company. Companies kept track of the mortality of their former employees through the Social Security
Administration. In some states, companies could even take out life insurance and collect death benefits
on the children and spouses of their employees.
Janitors insurance was especially popular among big banks, including Bank of America and
JPMorgan Chase. In the late 1990s, some banks explored the idea of going beyond their employees
and taking out insurance on the lives of their depositors and credit-card holders.
The booming business in janitors insurance was brought to public attention by a series of
articles in The Wall Street Journal in 2002. The Journal told of a twenty-nine-year-old man who died of
AIDS in 1992, yielding a $339,000 death benefit for the company that owned the music store where he
had worked briefly. His family received nothing. One article told of a twenty-year-old convenience store

2. clerk in Texas who was shot and killed during a robbery at the store. The company that owned the store
offered $60,000 to the young man’s widow and child to settle any potential lawsuit, without revealing
that it had received a $250,000 insurance payout for the death. The series also reported the grim but
little-noticed fact that “after the Sept. 11 terror attacks, some of the first life-insurance payouts went not
to the victims’ families, but to their employers.”
By the early 2000s, COLI policies covered the lives of millions of workers and accounted for 25
to 30 percent of all life insurance sales. In 2006, Congress sought to limit janitors insurance by enacting
a law that required employee consent and restricted company-owned insurance to the highest-paid
one-third of a firm’s workforce. But the practice continued. By 2008, U.S. banks alone held $122 billion
in life insurance on their employees. The spread of
janitors insurance throughout corporate America had begun to transform the meaning and
purpose of life insurance. “It adds up,” the Journal series concluded, “to a little-known story of how life
insurance morphed from a safety net for the bereaved into a strategy of corporate finance.”
Should companies be able to profit from the death of their employees? Even some in the
insurance industry find the practice distasteful. John H. Biggs, former chairman and CEO of TIAA-
CREF, a leading retirement and financial services firm, calls it “a form of insurance that’s always
seemed revolting to me.”
But what exactly is wrong with it? The most obvious objection is a practical one: allowing
companies a financial stake in the demise of their employees is hardly conducive to workplace safety.
To the contrary, a cashstrapped company with millions of dollars due upon the death of its workers has
a perverse incentive to skimp on health and safety measures. Of course, no responsible company
would act overtly on this incentive.
Deliberately hastening the deaths of your employees is a crime. Letting companies buy life
insurance on their workers does not confer a license to kill them.
But I suspect that those who find janitors insurance “revolting” are pointing to a moral objection
beyond the risk that unscrupulous companies might litter the workplace with lethal hazards or avert their
eyes from dangers. What is this moral objection, and is it compelling?
It might have to do with the lack of consent. How would you feel if you learned that your
employer had taken out a life insurance policy on you, without your knowledge or permission? You
might feel used. But would you have grounds for complaint? If the existence of the policy did you no
harm, why would your employer have a moral obligation to inform you of it, or to secure your consent?
After all, janitors insurance is a voluntary transaction between two parties—the company that
buys the policy (and becomes the beneficiary) and the insurance company that sells it.
The worker is not a party to the deal. A spokesman for KeyCorp, a financial services company,
put it bluntly: “Employees do not pay premiums, and therefore there’s no reason to disclose the details
of the policy to them.”
Some states don’t see it that way and require companies to secure the consent of employees
before taking out insurance on them. When companies ask permission, they typically offer workers a
modest life insurance benefit as an inducement. Walmart, which took out policies on some 350,000 of
its workers in the 1990s, offered a free $5,000 life insurance benefit to those who agreed to be covered.
Most workers accepted the offer, unaware of the vast discrepancy between the $5,000 benefit their
families would receive and the hundreds of thousands the company would collect upon their deaths.
But lack of consent is not the only moral objection that can be raised against janitors insurance.
Even where workers agree to such schemes, something morally distasteful remains. Partly it’s the
attitude of companies toward workers embodied in such policies. Creating conditions where workers
are worth more dead than alive objectifies them; it treats them as commodity futures rather than
employees whose value to the company lies in the work they do. A further objection is that COLI
policies distort the purpose of life insurance; what was once a source of security for families now
becomes a tax break for corporations.
It is hard to see why the tax system should encourage companies to invest billions in the
mortality of their workers rather than in the production of goods and services.
[Chapter 4 excerpt of the book “What Money Can’t Buy” by Michael J. Sandel)