The real scandal of "janitors insurance".

• Author: Stephenson, E. Frank
• Position: Etceteras ...

The past year has brought extensive media coverage of apparent corporate wrong-doing. High-profile bankruptcies, such as Enron's, and the "perp walk" arrests of corporate officers have been most prominent, but attention also has been given to the practice of purchasing so-called janitors insurance on rank-and-file workers.

Although many companies provide life insurance as part of their employees' compensation packages, janitors insurance (also known as peasant insurance of corporate-owned life insurance) is not a benefit that companies provide to workers. The survivors of deceased workers do not benefit from janitors insurance payments, and most covered employees are unaware that their employers have taken out insurance policies on their lives. The Wall Street Journal reports that "policies [can] continue in effect after workers have quit, retired, or been laid off" (Francis and Schultz 2002, C1). Critics predictably view janitors insurance as unethical. Examples include Amitai Etzioni, who breathlessly calls it a "ghoulish practice" (2003, A13); Senator Jeff Bingaman, who claims it is "unfair to workers" (qtd. in Schultz and Francis 2002, A2); and the editors of the Houston Chronicle, who opine that it is "shockingly callous" ("Can't Abide" 2002, A34).

That firms might want to purchase life insurance on key corporate officers is obvious. The loss of a CEO or other high official to, say, a plane crash or a heart attack might leave a company without a key member of its leadership team. Just think of what the sudden loss of Jack Welch might have done to General Electric or of the succession turmoil that might have erupted at Disney in the wake of an unexpected loss of Michael Eisner. Janitors insurance, however, is different. An ordinary employee, no matter how hardworking and productive, is typically just one among thousands of people working for a large company. It is difficult, therefore, to see disruption in leadership or uncertainty in succession as a rationale for companies' insuring the lives of ordinary employees.

Note, too, that the expected return from insurance would make it unlikely that firms would want to insure workers as a routine business practice. After all, insurance is actuarially unfair: every dollar paid in premiums, on average over a large pool of insured workers, will return less than one dollar of benefits. (This observation is not a moral condemnation of insurance, which has to be actuarially unfair because insurance...