In an effort to ensure that Washington workers cannot be exploited by life-insurance-buying employers, the Insurance Commissioner will ask the 2005 Legislature to tighten restrictions on corporate-owned life insurance (COLI).

Corporate-owned life insurance – more commonly known as “dead peasants” insurance – is the controversial practice where the employer purchases a life insurance policy on a worker – often without the worker’s knowledge or consent – and names the company as the beneficiary.

When the employee dies, often long after the employee has retired or left the company, the employer – not the worker’s family – collects the death benefit.

A clear message

“My proposal sends a clear message to Washington employers who would exploit their workers in this manner,“ Kreidler said. “This legislation tells employers that they need to find a better investment tool than capitalizing on the death of their rank-and-file employees.”

Under current state law, employers may purchase life insurance and name the company as beneficiary when purchasing insurance on key employees with “clear, insurable interests” – meaning that they are vital to the company. Rank-and-file employees normally won’t meet the “insurable interest” criteria of the state law.

New restrictions

Kreidler’s proposal, which would only affect new policies, retains the “insurable interest” requirement, and further requires employers to:

Obtain written permission from the employee before the insurance is purchased
Provide written notification to the employee within 30 days of purchasing the insurance

Additionally, the proposed legislation would require that the notification to the employee include:

A statement that the employer is carrying the company-owned policy on the life of the employee
The identity of the insurance carrier
Maximum face value of the policy
The identity of the policy’s beneficiary

The proposal establishes that the employer may not retaliate against an employee who denies permission for the employer-owned insurance.

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