Over the past few years we have written about secret insurance policies taken out by employers on their employees, which have been referred to as “dead peasant” policies. It now appears these type policies are still being used by some companies. Irma Johnson, a widow from Texas, who was featured in a Michael Moore movie, is now trying to let others know that their employers may have purchased secret insurance policies on their lives and stand to “profit handsomely” when they die. Her story was also retold on Good Morning America. We learned a few years back that the industry refers to the policies as “dead peasant” life insurance. Had it not been for a post office error, Mrs. Johnson may never have learned that when her husband, Dan Johnson, died of brain cancer in 2008, a bank got $4.7 million in insurance proceeds on his life. The bank had fired him years earlier and never told him or his family about the insurance policy.
After accidentally destroying an envelope containing a check for nearly $1.6 million made out to Amegy Bank, the post office misdirected it to Mrs. Johnson’s home because Dan Johnson’s name also was on the check. Mrs. Johnson wasn’t supposed to know that Amegy had the insurance policy on her husband, who worked as a project manager for the bank. His annual salary had been about $70,000.
Mrs. Johnson filed a lawsuit and forced the bank to reveal it bought policies in 2001 on more than 40 employees, including coverage on her husband. Mr. Johnson had been diagnosed with terminal brain cancer about 18 months earlier and been out from work for several months. Mrs. Johnson is now trying to force Amegy to reveal the names of those other employees. In the lawsuit Mrs. Johnson is seeking to recover the net proceeds Amegy received, $3.8 million — the death benefit minus the premiums it paid – from the bank.
Amegy Bank admits it purchased life insurance policies on a group of vice presidents and other officers and claims it was done to offset the cost of providing employee benefits. Amegy said taking out such policies is a “common practice among banks and other industries and is recognized and permitted by the applicable banking regulatory authorities.”
It appears a number of banks have purchased hundreds of billions of dollars of “bank-owned life insurance” on the lives of their employees. The policies typically remain in effect years after an employee leaves the bank. Banks receive significant tax advantages on the policies by writing off the interest they pay on loans to buy the insurance. Money invested in the policies grows tax-deferred and when the insured person dies, the death benefit is tax-free.
Mrs. Johnson’s story was featured last year in Capitalism: A Love Story, filmmaker Michael Moore’s critical examination of economic practices in the United States. Mike Myers, a lawyer with McClanahan Myers Espey in Houston, Texas, represents Mrs. Johnson in her lawsuit. Hopefully, he will prevail on his client’s claim and will be able to alert others to what this bank is doing. It’s impossible to defend the practice of employees taking out “dead peasant” insurance policies on employees without their knowledge.
Source: Houston Chronicle
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