News, Views and Careers for All of Higher Education
March 2, 2007
— Scott Jaschik and Doug Lederman
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I also wondered about the life insurance policies, but in a different way. Life insurance companies have expenses and a need to make a profit. This all suggests that the present value of the premiums they will charge the university will exceed the present value of the payments they expect to make upon the deaths of these 25 individuals. In other words, the university would be better off putting the same money in an investment portfolio, at least on average. If it were not so, agents would not earn commissions and life insurance companies wouldn’t have such big buildings.
Lynn Davis, at 1:00 pm EST on March 2, 2007
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Insurable interest?
Insurance laws generally require the beneficiary of a life insurance policy to have an insurable interest in the insured. That is, some kind of potential loss if the insured dies.
This is why Wal-Mart could not collect on the “dead janitor” policies it took out on low-level employees. The judge in the case assigned the death benefits to the insureds’ families even though Wal-Mart owned the policies and paid the premiums because they had an insurable interest in the insured and Wal-Mart didn’t. It doesn’t cost Wal-Mart much to replace a cashier or a stocker, so these policies did not constitute “key man” coverage like a baseball team insuring a star pitcher who would cost millions to replace.
So, where is the insurable interest of the booster club, Cowboy Athletics, in the alumni it insures? And why would they fund charitable bequests through life insurance, since they can expect to have to pay premiums for many years on each policy before collecting any death benefit? A cash value policy can have useful income tax benefits, but why would that interest a tax-exempt institution like Oklahoma State? How is this plan any improvement on existing methods of charitable donations and bequests such as charitable remainder trusts?
It wouldn’t take much to convince me that T. Boone Pickens is smarter than I am, but outside of generating some handsome paydays for the agents selling these insurance policies I don’t see the advantage and in view of the Wal-Mart case I even wonder about the legality.
Jack Olson, at 12:35 pm EST on March 2, 2007