Should Banks Profit From Employee Death Benefits?

May 20, 2009

(ChattahBox)—Banks are taking out life insurance policies on its employees in increasing numbers listing the bank as the beneficiary, according to the Wall Street Journal, with the banks expected to profit from death benefits to the tune of $400 billion in the coming decades, as employees die off.

This ghoulish behavior by major banks, such as Bank of America Corp, J.P. Morgan Chase and Wells Fargo is not illegal, but is certainly controversial and will only continue to increase, because the banks receive hefty tax breaks by using the insurance policies as a means to fund executive salary and pensions.

The tax-free “mortality dividends” the banks receive upon an employee’s death is just extra gravy on top of an already lucrative practice. New rules put in place in 2006, forbid companies from taking out life insurance policies on its employees unless they make up the top third earners of the company and also provide consent.

But according to the Wall Street Journal, the new rules have not slowed down the practice. In fact, banks alone have invested billions into employee life insurance policies since 2006.

One grieving widow of a former bank employee is seeking to stop the morbid practice of banks profiting from an employee’s death. Irma Johnson’s husband, Daniel Johnson died in 2008 from a brain tumor when he was just 41-years-old. Mr. Johnson previously worked for Amegy Bank, a unit of Zions Bancorp, as a credit risk manager.

Bank officials convinced Mr. Johnson in 2001 to sign a consent form authorizing an insurance policy on his life, with the bank as beneficiary. This came on the heels of Mr. Johnson surviving through two brain surgeries. As an inducement to obtain his consent, the bank promised to secure Mr. Johnson a supplemental life insurance policy worth $150,000. Four months later, Mr. Johnson was fired and the supplemental life insurance policy was cancelled.

Mr. Johnson died in 2008, leaving his wife and two children without any life-insurance benefits. However, a mistaken delivery of the death benefit check to Mrs. Johnson, instead of Amegy Bank alerted her to the shenanigans of her husband’s former employer. The check was made out from Security Life of Denver Insurance Co., payable to Amegy Bank for $1.6 million.

Irma Johnson became angry and sued Amegy Bank in February in state court in Houston. Mrs. Johnson claims among other things, that her husband was cognitively disabled when he signed the consent form in 2001. Amegy Bank declined to comment on Mrs. Johnson’s lawsuit, but noted that participation in life insurance contracts is voluntary.

Meanwhile, banks holding billions in life insurance policies on its current and former employees scour the Social Security Administration records for death reports, ensuring they don’t miss out on a mortality dividend payday.

Source


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One Response to “Should Banks Profit From Employee Death Benefits?”

  1. Affordable insurance life term | Inexpensive Term Life Insurance on May 20th, 2009 4:25 pm

    […] If you’re new here, you may want to subscribe to my RSS feed. Thanks for visiting!(ChattahBox)—Banks are taking out life insurance policies on its employees in increasing numbers listing the bank as the beneficiary, according to the Wall Street Journal, with the banks expected to profit from death benefits to the tune of $400 Term Life Insurance Tips […]

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