Companies Profiting from Low Income Employee Deaths

So they must not be losing policy on the whole. 350,000 employess, and how many are exactly dying each year? Lets just say they pay $60 ayear on the average for $65K insurance per covered employee. The insruance company would need for at least 323 walmart employees to die THAT YEAR, just to equal the premiums paid, not counting interest.

Did at least 323 employees die?

 

So they must not be losing policy on the whole. 350,000 employess, and how many are exactly dying each year? Lets just say they pay $60 ayear on the average for $65K insurance per covered employee. The insruance company would need for at least 323 walmart employees to die THAT YEAR, just to equal the premiums paid, not counting interest.

But then in this scenario, Walmart is losing out. Either Walmart is getting back more than they paid or less. If it's more, the Insurance company would raise the premiums. If it's less, then Walmart is dumb for trying this.

Major: Let's assume for the moment that they can write every premium off on their taxes. If they take a $50 tax hit in one place, couldn't the $50 deduction from the premiums offset that amount essentially balancing out the cost? If I get $50 in income and eliminate the tax liability by taking the $50 tax deduction from an insurance premium, aren't I just eliminating my tax burden on that portion of income? If that is the case, it is worth it.


Sure, that could benefit Walmart. However, that $50 is then revenues for the Insurance company, who has to then pay taxes on it. It would save Walmart money, but as far as how it effects the public, the total taxes paid by the two companies would be about the same.

 

Major, I think your last statement is correct. Walmart is losing money on this.

So if the cost for this is $20 mil a year, sure they saved $7-10 mill in taxes, but they lose out on net profits after taxes and expenses. $10-$13 million in muni bonds is always better than a couple hundred thousand in death premiums

 

Then Wal-Mart is stupid. They're doing something that is illegal in some states and at a cost to them. There's got to be some sort of benefit for them because corporations (or anyone else for that matter) likes to throw away money if they don't get something in return.

 

By the way -- looking back on my responses, I'm acting like Walmart is definitely a dumbass here. Realistically, there must be SOME benefit to what they are doing or they wouldn't be doing it. I just don't know what it is or could be, and it seems like a silly idea to me. I didn't mean to act like I know all the details behind the plan.

 

So you can understand why it's a little fishy then.

 

I'm interested also in the rational behind this.

 

Oh yeah, I think it's fishy and weird and kinda spooky. But since they aren't profitting off of the employee paying for the plan, I don't see how they (meaning Walmart + the Insurance Company combined) could possibly generate any profits out of it, and I don't personally see any major tax benefits out of it. I am very curious what the benefits are, though.

I also don't personally see the merit in the individual's lawsuit, to be honest. That employee wasn't harmed in any way by Walmart's actions. It may be illegal (and it certainly appears so in the case of Texas), in which case the state should fight it, but I don't see the merits of a civil suit here.

 

I think the insurance company is having a field day with that type of business. Who wouldnt enjoy receiving millions in income, while only having to repay back 1% or so of the income in death benefits?

If I remember the stat correctly, term policies pay out on less than 1% of the policies sold.

 

It has to be a tax issue, in which case it's the taxpayer that is getting screwed. There is no sensible insurance reason why Walmart would do this. Insurance companies don't lose money, else they wouldn't be in business, and Walmart could easily afford to self-insure for this kind of risk. The only answer I can think of is that the after tax expenses are less than the after tax gain. Perhaps income from insurance policies is taxed differently for some reason.

 

ding ding ding....we have a winner...this is exactly the reason....same reason why a life insurance agent will tell you about the many tax benefits of owning life insurance policies....

 

Numbers do not add up. Again, for this venture to be profitable, there needs to be a signifiant amount of employees passing away to make up for the post tax income used to purchase the policies.

So using the above numbers ($20 mill cost of insurance, 7-8 mil otherise tax funds + 12-13 mil profits after taxes) So ill just give a generous number and say each employee was covered for $100K, Walmart would need between 120-130 employees to drop dead, JUST TO EQUAL the post tax earnings of $12-$13 mill. And to make it profitable, the death beneits alone would have to exceed the premiums paid. Now im not even going to go into the opportunity cost of what those premiums could have grown to if invested, and state the number of deaths should reflect the potential investment growth.

To sum this up, unless a large number of deaths are occuring to Walmart employees, I don't see the bottomline in favor of Walmart. Who knows who made this decision for the company. Was this the act of a super slick willy sales agent pitch

 

It's called The Law of Large Numbers.

<b>Any</b> policy which a company can underwrite within their proscribed underwriting guidelines contributes to a likelihood in profitability.

That's the smart game they play and they seldom lose... as long as they keep within their underwriting guidelines.

Historically, Term policies have only accounted for about 1% of Death Claims. That could change in the next few decades though with the advent of multi-year Level Term policies. Also, lots of Term policiies are converted to Permanent ones somewhere along the way.

 

NCSTATEFAN, You're in the insurance business, so I'm guessing those numbers are roughly what the real ones would be? The CIA site lists the US death rate as 8.7 deaths/1,000 population (2001 est.).
http://www.cia.gov/cia/publications/factbook/geos/us.html This number won't transfer straight across because the demographics will be different, (probably fewer seniors, who would have the highest death rate, but also no infants or small children who would have very low ones) but I think it still suggests that a large number of Wal-Mart employees probably die every year.

 

It is evil because it is demeaning, and helps to foster a world in which people are treated as comodities, not people. It is typical corporate dehuminization.

 

Well, corporations are not human; they are entities. What did you expect? If they don't like it, they don't have to work there.

As I understand this, the individuals are willing to buy life insurance on themselves (even if it is to get health insurance, BTW how many Seniors need health insurance with Medicare and Med Supps?) so they are defining themselves as commodities. Wal-Mart is just following suit.

 

If anybody still believes that insurance companies can't and don't lose money, I would invite them to research the failure of Executive Life and it's ultimate seizure by the California Insurance Dept. and the collapse of Kentucky Central Life Insurance. These were two of the largest life insurance companies in the United States at the time of their failures.

 

Of course some companies can and do fail. Those are 2 exceedingly bad examples of how to run an insurance company or 2 good example of how to screw it up.

Part of the reason they were so big is because they were practicing bad business NOT in the interest of their long-term survival.