Does your neighbor hold a secret life insurance policy that pays off if you die? Can’t answer that if it’s a secret—right? How about your employer?
Well, if you work for JP Morgan Chase or some of the other big banks, your life may be insured against (i.e., for) your death without your consent or even your knowledge. Surprised?
Even more seemingly bizarre is that the bank may hold such a policy as a wager on your life even if you are an ex-employee.
It seems that the joint creative efforts of big banks, government legislators and regulators have produced a truly imaginative and profitable scheme that allows precisely such practices: the so-called “BOLI”–”Bank Owned Life Insurance” program, not to be confused with the Ebola virus, despite their shared capacity for creating angst among those who discover they are exposed to either.
BOLIng for Dollars
A March 24, 2014 WallStreetonParade.com article titled “Document: JPMorgan Chase Bets $10.4 Billion on the Early Death of Workers” reports that,
“According to the December 31, 2013 financial filing known as the Call Report that JPMorgan made with Federal regulators, it has tied up $10.4 billion in illiquid, long term bets on the death of a large segment of its employees.”
A terse summary from the U.S. Treasury of the Office of the Comptroller of the Currency explains the BOLI program this way:
“National banks may purchase and hold certain types of life insurance called bank-owned life insurance (BOLI) under 12 USC 24 (Seventh). Banks can purchase BOLI policies in connection with employee compensation and benefit plans, key person insurance, insurance to recover the cost of providing pre- and postretirement employee benefits, insurance on borrowers, and insurance taken as security for loans. The OCC may approve other uses on a case-by-case basis.”
The BOLI program is a subspecies of COLI—Company Owned Life Insurance—not to be confused with E. Coli, the infective bacterium, again, despite any anxiety-inducing similarities between the bank program and bacterial agendas.
It is also a form of “dead peasant” insurance, dating back to the 1980s, when Winn Dixie Stores bought life insurance policies on approximately 36,000 of its employees, without their knowledge or consent, and named itself as the policies’ beneficiary.
Dubbed “dead peasant insurance” in an internal Winn Dixie company memo discovered and exposed by journalists, the name, like the alternate designation “janitor insurance”, has stuck.
Deadpeasantinsurance.com warns that “because a company’s purchase of insurance policies is not a public record, it is virtually impossible to know every company that invested in policies on employees’ lives.”
However, the site provides an arm-long list of companies believed to have taken out such policies.
Tax and Benefit Loopholes the Size of Hula Hoops
The benefits to the banks are not limited to the policy payday cash-outs. On top of those, there are the tax breaks:
“The insurance policies essentially are informal pension funds for executives: Companies deposit money into the contracts, which are like big, nondeductible IRAs, and allocate the cash among investments that grow tax-free. Over time, employers receive tax-free death benefits when employees, former employees and retirees die.”
These constitute but a sampling of the tax loopholes, that, like free hula hoops, are offered the banks under the BOLI program. As another self-created bonus, the banks are allowed to take out those policies with their own affiliated insurance companies, thereby creating additional revenues.
In any case, a May 20, 2009 Wall Street Journal report, titled “Banks Use Life Insurance to Fund Bonuses” noted that “over the coming decades, banks will receive an estimated $400 billion in death benefits, consultants estimate.”
Although, unlike your neighbor, the banks, it seems, may have constraints on partying with the proceeds of a BOLI policy that pays when you die, nonetheless, your consent or knowledge is not required in some states.
Of course, whether the banks are whooping it up with those benefits depends on whether the main use made of them—bonuses and other compensation to executives—counts as partying.
According to the same Wall Street Journal article, “In recent years, the Office of the Comptroller of the Currency affirmed that banks can buy life insurance to finance employee benefits. But filings show that executive compensation accounts for most of the benefits.”
Moreover, as noted, such policies can be taken out to cover ex-employees, e.g., at least if the insured has loans with the bank, as implied above in the OCC summary. As the wallstreetonparade.com article more broadly notes,
“Somehow, banks are allowed to collect death benefits on terminated workers right under the nose of State insurance regulators. The explanation is likely the secrecy which surrounds these policies, limiting knowledge of death payments to just the bank and the insurance company.”
In addition, even if you are not an ex-employee, you need not be or have been a “key employee”, whose death could cripple the company. Rank-and-file employment will (have) suffice(d). What limits and constraints are imposed on such bank “wagers” on the current or former staff is uncertain, especially given the OCC notice that “the OCC may approve other uses on a case-by-case basis.”
Although JP Morgan Chase is the current BOLI champ, back in 2009 Bank of America Corp. had the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. Wachovia Corp. had $12 billion, J.P. Morgan Chase & Co. had $11.1 billion and Wells Fargo & Co. had $5.7 billion. (Wells Fargo acquired Wachovia at the end of 2008.)
What can you do, if there is a dead peasant policy, like a bounty, out there on you? You might consider retaliating by going to one of those big BOLI policy-holding banks and buying some derivative that bets on the financial death of the bank insuring you without your consent or any bank that holds BOLI policies.
That would be like purchasing “naked credit default swaps”, as bets on the failure of institutions one otherwise has no stake in and would therefore love to see go under, just as the bank has a stake in seeing you go six feet under.
But that is unlikely to succeed, not only because you may not be able to retaliate against the specific bank that holds the BOLI policy on you, but also because…
…you will certainly go under before any one of those banks does.