The cases discussed in the article involved broad-based life insurance arrangements established prior to the enactment of legislation in 1996 that curtailed their tax benefit. Prior to the 1996 Act, the tax law permitted business policyowners to claim interest deductions with respect to amounts borrowed against the cash value. Since the 1996 Act, companies such as those featured in the article have found it economically unattractive to establish life insurance purchase programs covering rank-and-file employees.

It should be noted that state laws generally limit the amount of life insurance coverage that an employer may purchase by reference to the employers insurable interest. This is usually in part determined by compensation. Insurable interest limits are a matter of good public policy. Where those rules have been violated the courts have imposed a remedy. Every employee should be notified, and employers should be given written consent before insurance is purchased on the lives of employees.

Today, when companies purchase life insurance on employees, these purchases are carefully tailored to reflect the cost of benefits being provided to the workers whose lives are insured. In this context and every other way, an employee’s death is not a “windfall” to the employer.

Joe B. Jones,

Lawrence