Corporate-owned life insurance policies  — commonly known as “dead peasant insurance” or “janitor insurance” – will no longer be allowed under a law requested by Insurance Commissioner Mike Kreidler and signed this week by Governor Christine Gregoire.

“The new law sends a clear message to any Washington employer who’s profited in the past from exploiting their workers in this manner,” Kreidler said. “They’re going to need to find a better investment tool than capitalizing on the death of their rank-and-file employees.”

Corporate-owned life insurance is a 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.
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. However, rank-and-file employees normally won’t meet the “insurable interest” criteria of the state law.

The new law applies to new policies and 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

In addition, employers may not retaliate against an employee who refuses the coverage and, if an employee grants permission, they must receive a notice that includes:

— A statement that the employer is carrying the company-owned policy on the life of the employee

— The identity of the insurance carrier

— The maximum face value of the policy

— The identity of the policy’s beneficiary

“We’ve been fighting for three years to enact legislation that protects employees from the unseemly practice of their employers taking out life insurance on their lives without their knowledge,” said Kreidler.  “The consumers of Washington owe thanks to Senators Darlene Fairley and Don Benton and Representative Steve Kirby for their tireless efforts to enact these important consumer protections.”