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Google Keeps Paying Deceased Employees' Families for a Decade (theatlantic.com)
289 points by jbredeche on Aug 9, 2012 | hide | past | web | favorite | 124 comments



This kind of stuff is great, and great is an understatement.

When my Dad passed back in the early '90s from cystic fibrosis, the company he worked for (for about 15 years) continued to pay our family his entire salary for 3 years.

That was what enabled me to be where I am today. It allowed my Mother, who was a stay at home Mom with two wild ass kids, to take the time out to get a solid vocational education and get a job that pays a decent wage.

Anyways. Good on google.


This is just a life insurance policy being rebranded and puffed up by Google PR & Google HR.

Life insurance is a standard benefit among many top employers. What makes Google a bit different is that they're paying out 10 x salary, which is probably at the higher end of the spectrum of policies like this. I think my previous employer paid something like 4 x salary for death through illness and 10x for accidental death. Perhaps Google is happier to pay higher premiums or they've negotiated down thanks to a younger and healthier corpus of employees?


Life insurance is provided as a separate benefit.


He's pointing out (correctly) that this is an entirely cosmetic abstraction layer on top of life insurance. It's like saying "And in addition to your salary, we're also giving you a roll of quarters every month in case you need to pay tolls, do laundry at one of those barbaric laundromats not in the Googleplex, or play arcade games." "So what you're saying is you're giving me $10 a month extra in salary?" "No no, what we're saying is we're giving a roll of quarters..."

Pro-tip for HNers here, by the way: Notice how you responded much, much more viscerally to this emotional, novel perk than you would have if Google had described it as an industry-standard perk with a knob slightly adjusted? Please remember this the next time you're e.g. writing a pricing plan or feature grid.


When it boils down to it, every perk is an entirely cosmetic abstraction layer over money. The company spends money, and employees save money.

The interesting perks are the ones that save the employee more than money. Free food does more than save employees from spending money on brown bag lunches or fast food joints: it saves employees from having to even think about how they'll eat lunch. Shuttle service? It doesn't just save employees the money they'd spend commuting, it saves them time and the frustration of dealing with traffic or public transportation.

In that sense, a survival benefit like this isn't just the company throwing a few extra dollars for life insurance at employees. It's not just saving employees money, it's saving employees from the pain of having to concern themselves with how their surviving dependents will get along. They don't need to see a doctor for a physical to get this benefit. They don't need to calculate their number of expected children, multiply by their expected college expenses in a decade, figure in the remaining cost of their mortgage, the time it will take their spouse to find employment, etc. in order to put a number of how large a life insurance policy they need to take out; they can simply rest easy knowing that their dependents will be taken care of for a decade or longer and not give it a second thought.

The survival benefit Google offers in addition to industry-standard life insurance is only "an entirely cosmetic abstraction layer" in the most uninteresting of ways.

(Disclaimer: I'm a software engineer for Google, but these opinions are entirely my own.)


We are in total agreement that sane defaults and benign paternalism can create value; I'm just interesting in the marketing. (P.S. Only mentioning because it is not obvious given the sociopolitics of American engineers: I am not using "paternalism" as a crypto-criticism.)


> When it boils down to it, every perk is an entirely cosmetic abstraction layer over money.

That's only sort of true. What large corporations offer in addition to things that can be abstracted as money is collective bargaining / purchasing power.

The important inequality is that there's not fundamental equivalence between a dollar spent by Google and that dollar given to an employee to be spent on the same aim. Real benefits, as opposed to those which are simply redirected salary, are those where the corporation leverages its collective power to obtain a significant discount or make possible things which would otherwise be unavailable.

Google can in bulk buy insurance policies that might even be wholly impossible for individuals to acquire at any reasonable price point. Certainly there are some benefits (insurance or otherwise) that would not be reasonably available to individuals to buy a la carte.

This, however, is probably not one of them. Extra life insurance benefits are probably something that could rather easily be rolled up in a standard life insurance policy. That said, Google probably does get more bang for their buck than the average consumer would.


Large companies aren't the same as individuals when it comes to insurance. If you have enough employees, and you're covering an relatively small risk, you don't need to /buy/ anything at all. You just self-insure and you save a ton of money relative to what an insurance company would charge for the same coverage.

I've worked at several large companies where almost all of the insurance (health, life, etc) was done on a self-insured basis, with an insurance company providing providing administrative oversight (validating claims) for a flat fee. (But not actually providing insurance coverage.) If necessary, a company can buy reinsurance to cover claims above some (very, very high) deductible, the same way that your insurance company does.

And the reason why large companies do this is that, in fact, they do get a lot more bang for the buck than any of their employees could as individual consumers.


Why do they not need to worry about the number of children? If you have more than two kids, they can burn through half a salary in college tuition easily.

This is exactly what life insurance is. Death benefit: 5x salary total, payable in ten annual installments. Anybody worrying about their future does need to worry if 5x salary is going to be a sufficient amount.


... in which case they would buy more insurance. This benefit from Google is additive to existing benefits (including life insurance, which as mentioned is free up to certain limits and can be bought for additional amounts), and does not replace those benefits. So if you opt to not have ANY life insurance and instead depend solely on Google's stated 5x salary death benefit, then, yes, that's not enough. But this benefit is not meant to replace life insurance, but rather to augment it.


The article also said that all children would receive $1k/mo until 19 (or 23 if a full-time student).


> "And in addition to your salary, we're also giving you a roll of quarters every month in case you need to pay tolls, do laundry at one of those barbaric laundromats not in the Googleplex, or play arcade games."

... is it just me or would this be an incredible perk? If a roll of quarters and an envelope with $250 worth of $1, $5, and $20 bills were delivered to my desk every month I'd save a lot of time going to the ATM or the laundromat for tips/laundry/cash-only restaurants/etc. I think I'd willingly give up a lot more of my salary than it's actually worth for the convenience of perks like that. Free laundry (like, full wash and fold and dry cleaning)? Shit, for that I'd probably take a $95K job over a $100K job (all other things being equal) even though it's really worth ~$1000 at most (comparing against the cost of laundry services, not machines, of course). Does Facebook still have that?


If a roll of quarters and an envelope with $250 worth of $1, $5, and $20 bills were delivered to my desk every month I'd save a lot of time going to the ATM or the laundromat for tips/laundry/cash-only restaurants/etc. I think I'd willingly give up a lot more of my salary than it's actually worth for the convenience of perks like that.

OK. Give me your postal details, pay me $1000 per month, and I can organise that for you.


You sound almost sarcastic there, but I'm guessing you respond in earnest?


I think I may have been slightly exaggerating about trading 5K a year in income for free full service laundry, but I was mostly serious :)


This benefit is probably not taxable until you actually die and the spouse gets the money, whereas contributions to life insurance are likely considered taxable income during life.


> He's pointing out (correctly) that this is an entirely cosmetic abstraction layer on top of life insurance.

Life insurance is provided by extremely conservative, highly diversified investment companies.

> Notice how you responded much, much more viscerally to this emotional, novel perk ...

Yeah, with nausea that employees are expected to gamble something so important on ... AdSense.


Life insurance is provided by anyone willing to pay your survivors a death benefit.


Yeah, like Enron or Lehman Brothers or General Motors.

The point is that betting on your employer is a bad idea when it comes to insurance products and especially annuities. If you want your kids to have financial support if you die, you owe it to them to buy policies from more than one conservative insurance company. The whole point of insurance is to defray risk, not get a handsome payout.


Half salary for 10 years would be 5x salary, nominally. Present value is probably around 4x salary.


The interest rate is really so fucking low at the moment that the present value is about the same as the nominal. I would expect a survivor benefit to be inflation indexed too.


It's actually 5x salary, which for the typical highly paid google engineer is probably a life insurance policy which costs < $100 per month.


Money loses value, so it's less than 5x if you use the discounted present value of the future cashflows.

Finger in the air, it's around 4.5x if you assume a discount rate of 3% and 4x with a discount rate of 6%.


It is fantastic PR, though. It sounded fantastic to me until I remembered that I have a private policy that is about 7x salary plus a separate policy that repays my mortgage, and the combined cost is low enough that I don't notice when it goes out each month.

If I wasn't paying for my own separate insurance, I probably would've been easier to wow with this.


Where do you get the 10x salary number ? The linked article says 50% of salary for 10 years -> 5x yearly salary total.

I wouldn't say that on average my co-workers are "younger" (than whom?). Healthier, maybe.


If it's salary and doesn't include equity or benefits, its value is reduced another 30%-50% as a multiple of compensation.


I love the framing of the statement.

"This might sound ridiculous, but we've announced death benefits at Google."

From that point on, you're led to believe that Google is such a great company that it's willing to hurt itself to be good to its employees. Much better than "We automatically contribute $10 a month into a life insurance policy for everyone."

To me, it's a great example of showing the benefits instead of just the features, mixed with an elegant form of Crazy Mike's Discount TV Warehouse, with prices so low, we must be crazy.


Speaking as a Google employee who does NOT speak for the company, I remember reading the notice about this. This is separate to life insurance (which we also get).


Yeah, I was going to say. This is on top of Google's free, portable, standard life insurance, from a big conservative company. Which even when it's free, is better than any of the life insurance policies people have already mentioned in these comments. And which, if you want to, you can pay extra to upgrade.


Disclaimer: I am not an actuary.

The rules governing Corporate Owned Life Insurance require notification except in the case of highly compensated employees (over $95k/year), according to Wikipedia.

http://en.wikipedia.org/wiki/Dead_peasant_insurance

Looking at it cynically or from the standpoint of cold hard cash - take your pick - it looks this sounds like "dead peasant insurance 2.0" - i.e. an actuarial scheme for the age of blogs and the PR nightmares they can create. When considering life insurance as a financial instrument, Google is in a position to structure the policies in ways which benefit their own bottom line (consult your tax attorney and re-insurance provider for details). I would conjecture that the level of Wall Street analyst outrage over this benefit is probably proportional to the drag the policy creates on Google's gross revenues.

The worst case payout would probably be somewhere around six times annual salary - married, quadruplet infants, and little return on investment over the lifetime of the annuity payments. Actuarially, it may be significantly less across the pool of Google's employees.

The neutral case is an employee with a role that it makes sense to insure anyway, and the death benefit creates only a marginal increase in policy price (one which may well be offset through retention and goodwill).

The best case is zero - no spouse or domestic partner, no kids.

Like many things in Silicon Valley, I suspect that the entire investment is funded by the homeruns. Young employees, such as new college grads, are the least expensive to insure and would generally provide the highest rates of internal death benefit retention and the highest probability of cash value retention due to resignation. By coincidence, this also happens to be a demographic Google recruits heavily.

None of this is to say that this is bad for Google employees - it may in fact be a win-win. Only that it is unlikely to be munificence on the part of Google as the article implies. I suspect that following the money will lead to the bottom line.


How woukd Google make any money by buying an insurance policy that has the employee's family as beneficiary? They can't save more on taxes than they pay on premiums.


I am amazed at how well Google always treated, and still treats its employees. I am even more amazed at companies like Zynga, Amazon and other popular valley companies (both big and small) dont take a leaf or two from Google's playbook, and start treating employees with more respect and give good perks, and spend resources to provide their employees an awesome working environment. The more a company gives, the more it gets from its employees. It is a simple rule. Marissa is prudent and wise enough to know this. Food is free for employees at Yahoo! now. Other execs can learn a thing or two from her.


Google is massively profitable. They don't need to make "hard" decisions and they can afford to invest in extremely generous terms for employers.

If and when Google's revenues fall, expect to see benefits like this slowly dry up.


I envy not Google employees who get these benefits. I envy Larry Page and Sergey Brin for founding and building a company that is capable of offering these types of benefits.


You don't have to be all that envious of the capability to offer this particular one. As pointed out by many people here, it is rebranded term life insurance, and dirt cheap for the typical HNer. Kalzumeus bought a $500k policy for me when I got married. The rate (locked in for the next 10 years) was in the tens of dollars per month. I'm pretty sure it is tax-deductible (confidence for Japan: near total, US: fairly strong), too, but if my accountant has a problem with that it is still in the tens of dollars per month.

Google can afford to a) self-insure and b) afford modestly higher policies at the upper end without a physical and possible reject (my insurance agent was "only" willing to go up to about a million before they started asking questions), but they're not uniquely capable in this regard.


Hmm, they did spin it well. I feel a bit silly for not recognizing it. And you're right, this can be a nice "benefit" that would be really cheap to add for employees, especially at the age that most "hackers" are at.


As a point of reference, my employer provides 2x my salary in life insurance for free, and I can double it to 4x for $6.80 a month.

It's a nice benefit, but it's on the same extravagance level as providing free coffee.


fyi, there is a term mortality protection gap known about in insurance at the moment, in which limited duration mortality-based benefits cost significantly less than the utility customers derive from them. There is a report somewhere, but I don't know if it is confidential. http://www.swissre.com/reinsurance/insurers/life_health/Swis... is related.


The report says that people require life insurance, because the financial burden on their family after death is too high for them to afford.

It also says that purchasing life insurance is a cheaper alternative than building the required savings to cover the family's financial burden after losing the main breadwinner.

The report was written by Swiss Re.


Yes, sorry, it's not the right report.


Perhaps I have misunderstood the terms of what Google is offering.

You say tens of dollars. You are taking pains to indicate how little it costs, so I suppose that means at least $20. If you started at (say) the age of 30, it doesn't much matter about the rate in the next 10 years - what matters is the next 45 years or so. By the time you are 75, what will the rate be? And what proportion of 5 years salary will it pay out?

Insurance agencies are not charities, nor do they pay your salary; they operate on a for-profit basis. The insurance agency is not going to offer you a deal that loses them much money on average. If they never raise the rate and you die promptly at 75, you have only paid in $10,800 (aka $2,160/yr for 5 years, which is a pittance). Since they hold the money they make some interest, but if they pay out much more than you paid in (since they do still have to pay their own bills) they don't break even, and they can't survive if that is the usual case.

They are going to have to dramatically raise your rates, or pay much less at the end, or make it less likely that the benefits will be paid out. More likely all 3.

So I am skeptical that the relationship of a Google employee to their death benefits is really comparable to your relationship with your insurance agent.


A benefit that never decreases, premiums that never increase, no questions asked for less than a million bucks, and a configurable end date picked in advance? The industry has a word for this. It is called term life insurance. It is a very inexpensive commodity trivially available from hundreds of providers, which is why they spend hundreds of millions so you remember the talking duck.


I don't understand how that answers the valid points that the person above (slurgfest) raised. It seems impossible to me that any company could offer a policy such as yours (patio11) for 45 years. (Yes, I know that you said that yours is 10 years, but please bear with me for the sake of my example.)

I think that slurgfest was trying to point out the flaws in the following kind of reasoning:

- A man buys a term insurance policy at age 30

- The policy that costs $20/month

- After 45 years, the total cost would be $20 x 12 x 45 = $10,800

- If the man dies at age <= 75, the policy pays out $500,000

- The average life expectancy in the US is 75 years (Wikipedia)

No company could offer a policy like that, right? There's a 1 in 2 chance that the insurance company will pay $500K but will only have received fees of $10K.

If the scenario I've described is possible, could you--or anyone--please explain why the insurance company wouldn't go bankrupt?


Yes, I know that you said that yours is 10 years, but please bear with me for the sake of my example.

Do you understand that the "term" in "term life insurance" is a very, VERY important detail? If you carry the term out to where there is an actuarial likelihood (or certainty!) of death, then yes, term life insurance does get radically more expensive. If you cover a) someone's working career or b) someone's expected career with a particular company, term life insurance remains quite inexpensive.


It's a 10 or 20 year term and the rate goes up when you're in your 50s. It's dirt-cheap now for those of us in our 20s and 30s without occupational death risks because the odds that we'll die are pretty low. But term life insurance when you're 60 is considerably pricier. And that's who the benefit is aimed at - industry veterans who are looking for the job they'll retire from a decade or so down the line.


Are people really going to keep working at Google until they're 75? I expect most of them would like to retire at some point.


Are you really going to keep paying into the insurance policy until you're 75? The sooner you stop paying in (or die), the more you'd have to have paid in order to count on getting 5 years' salary paid out.

The incentive structure of your deal with the insurance agent is that he is trying to get more money out of you than you will get paid out.

The incentive structure of your deal with Google is that you have a benefit for staying.

Retirement is really another issue.


The incentive structure of your deal with Google is that you stay while you are young, but get out before you are likely to die.


If Google reduced your pay as you got older, then that would be strictly comparable to the insurance agent who raises your rates as you get older.

Otherwise, it's not comparable


You can envy that this would make the transition to a new, unplanned and unexpected life MUCH easier than it would have been had it included the financial stress.


Wouldn't it be much cheaper to offer a life insurance policy for each employee that would pay out enough to generate this much income at a relevantly low interest rate? Or is that what they are actually doing and just packaging it differently?


How could it possibly be cheaper? The insurance premiums will have to be enough to cover the costs of the payouts plus overhead and some additional margin of profit for the insurance company.

Insurance is just a way of converting a small risk of a large loss into a large risk of a small loss, by spreading the risk over many people. It never saves money on average. If your company has as many employees as Google has, you may as well bypass the middleman.


>How could it possibly be cheaper? The insurance premiums will have to be enough to cover the costs of the payouts plus overhead and some additional margin of profit for the insurance company.

This isn't completely true. Most insurance companies make additional income on investing the float[1]. Warren Buffet started his economic empire through his insurance company and his ability to prudently invest the float it generated.

For the majority of companies I would assume it is still cheaper to buy insurance than it is to self-fund since they do not have the actuarial or investment expertise that many insurance companies have built up over the years. And I doubt Google is going to be doing something like that in-house, though it is possible. It's also equally possible that they are just taking out life insurance policies on their employees and then sugar-coating it as a "death benefit".

[1]https://en.wikipedia.org/wiki/Insurance#Insurers.27_business...


Investment on the float is something you can do on your own without insurance. There have to be better ways to access that level of investment expertise without paying an insurance company for it.

Is the actuarial expertise necessary here? That's needed to set premiums for individuals who take out policies so you know how much they should pay given their situation. But when you're self-insuring like that and not requiring anyone to pay premiums, what does it matter? At most, you need a general idea of the overall costs based on the aggregate demographics of your workforce, which is a much less complicated proposition when you have as many employees as Google. Depending on how you want to do it, you may not even need that, since Google has a lot of cash and can probably just make a guess.


Wouldn't it be much cheaper to offer a life insurance policy for each employee that would pay out enough to generate this much income at a relevantly low interest rate? Or is that what they are actually doing and just packaging it differently?

Pretty sure Google would have run the numbers on that.


This is a life insurance policy, except that Google is self-insuring.


It is a life insurance policy, but that isn't the only difference. A key point for me is that google employees are ensured to a very high level without having to send the insurance company the results of a medical exam. Most companies I've worked at can only insure you to 2x or 3x your annual salary without the exam, and they charge you extra to provide even this level of coverage. Google's policy is slightly better than 5x.


Google's policy is slightly better than 5x.

If you ignore the time value of money.

Google's policy is 5x your salary, but spread out over 10 years. Much better (for you, worse for google) to get the cash up front.


Its true that theoretically the value of 3x up front is in the same ballpark - but only if you invested all of it wisely. But in reality my wife would need to use the entire benefit to pay down our mortgage and refi, so those theoretical gains mean little. Meanwhile, she has to somehow get enough income elsewhere to pay what is left of the mortgage, our kids college, etc. Knowing there is some real level of income security for 10 years is way way better.


Isn't the mortgage a high interest rate compared to investment? That should save you even more money.


Paying down principal is a postive return investment strategy, equal to your interest rate (minus tax deductions).


Life insurance/assurance doesn't make much sense for an entire workforce - the insurance company has to make money somewhere. The total you would pay in premiums to cover everybody would almost certainly exceed what you'd end up paying out of your own pocket instead.

I don't want to come off as morbid, but I assume it must be reasonably straight-forward for Google to estimate/budget how much this benefit will cost long-term. After all, death rates amongst populations are generally well known.


That's not necessarily what is best for the survivors. Managing money requires effort, and you can't get scammed out of something that you haven't been given control over.


Google is sitting a giant pile of cash, with few attractive places to park it. In that situation it makes a lot more sense to self insure. If that changes in the future they can always take out a reinsurance policy to cover the costs.


So soon as you leave google you have to sign up for a real life insurance plan? At that point you may be too old to get one at a good price. This seems like a sneaky way to scare people from leaving google?

As I understand it at a normal company you pay into a life insurance plan each month from a young age, so that if you take this plan with you to a new company you get to keep the low rate you have earned. With google you loose all your life insurance if you leave Google!

Am I confused or is this a crummy deal?


Life insurance is not exclusive. You can take out a policy on yourself, and your employer can take one out on you, and you can buy one through your employer, all at the same time. In fact, Wal-Mart has been accused of surreptitiously taking out life insurance policies on its own employees without their knowledge. This allows them to claim and get a death benefit on some of their older, senior citizen employees. Clearly in that case, Wal-Mart being a policyholder had no impact on the employees having their own policies at the same time.

In this instance, Google is providing an additional benefit to its employees (benefits go to them) which doesn't preclude the employee from getting their own policy -- which they should, since they should never have a life insurance policy that is dependent on employment.

In fact, Google gets a good deal in doing so. When they insure their employees, they are doing so with a limited term (a 10 year payout instead of a one-time lump sum), and they are also getting the benefit of a group life insurance policy, which averages out the rates across the insureds rather than on a per-person basis, which would require each employee to endure a physical and a qualification check. Sounds like something other businesses might think of emulating.

I liken this more to a disability insurance benefit rather than something that is used to keep employees committed to the company.


The policies you mention at WalMart are called "dead peasant insurance". There were even investment funds that engaged in betting on the deaths of nearly random people that had little to no connection to those taking out insurance, but about which the investors had more information about their health and longevity than insurance adjusters. These were good investments because the money you put into it in many cases was tax deductible, but life insurance benefits paid out are completely tax free. So the thing in essence was a legal money laundering operation that converted possible taxable corporate profits into completely untaxed death benefits.


Apparently not that great of an investment, tho: http://www.contingentfeeblog.com/2009/05/articles/corporate-...


This seems like a sneaky way to scare people from leaving google?

What, by making "working at Google" better than "not working at Google"?


I posted this before some one said "It's not in lieu of normal life insurance. It's an additional benefit."

If this was in lieu of normal life insurance (Which every major tech company supplies their employees) this would be a crummy deal. And a sneaky way to skimp on life insurance.

If this is confusing I will give you an example.

John works at say Firefox. He is given a 500k life insurance plan as part of his benefits.

Mike works at google and he is given (100k / 2) * 10 as a death plan (but not life insurance).

After 20 years of work John leaves Firefox and Mike leaves Google. Both leave to do contract work.

John's life insurance plan is portable so he is able to keep it by paying a small amount each month.

Mike has no life insurance plan. He has the option to buy one on his own. This is expensive as he is 20 years older now and has medical conditions that he didn't have 20 years ago. It is so expensive that he can't afford life insurance at this point.

John has the exact same condition, but his plan was portable so he doesn't have to pay high amounts each month.

Both John and Mike die a year later due to their condition.

John's family is given $500k. Mikes family gets nothing. And google got away with paying $0 to provide Mike with a death plan. Firefox spent thousands of dollars over the last 20 years to provide John with a portable life insurance plan.

Moral of this story this is why a death plan in lieu of life insurance is crumby. However, it turns out Google is giving away both, so everyone wins :)


Scary! How dare they try to take such a nice approach to employee retention.


You are completely confused.

All the Silicon Valley companies I've worked at give you automatic 2 x salary as a death benefit for free. This is without taking any sort of physical, etc. If you want additional benefits, you need to pay extra per month, submit to a physical, etc.

It seems like instead of the regular 2 x salary, Google is offering 5 x salary for free, which is really great.

Saying it's some sort of scare tactic is preposterous. That's like saying paying people extra is a scare tactic, because they won't be able to make the same amount of money elsewhere.


No.

The Death Benefit is in addition to the Life Insurance.

Death Benefit = 50% Salary for 10 Years. Life Insurance = 300% Salary at Death.

The above is provided for free.

Additionally you can increase the Life Insurance percentage by making additional monthly contributions.


It's not in lieu of normal life insurance. It's an additional benefit.


I think you may be confused.


Morbid as this may be, it's common practice. There was a scandal about it involving Walmart not long ago where they gave absolutely nothing to the family.

http://consumerist.com/2007/07/walmart-took-secret-life-insu...


That scandal was retarded. They did it for tax reasons. You can certainly argue that the tax code should be changed, but arguing that the families were somehow entitled to something just because it was called life insurance was ridiculous.


What loophole in the tax code makes that behaviour worthwhile?


Life insurance premium payments on employees are tax deductible expenses.

Life insurance payouts are not considered income and are tax free.

It used to make more sense to do this when corporate income taxes were higher since you converted potentially taxable income into a non-taxable expense, that was later collected as an untaxable redemption, minus the insurance company's overheads.


I think the loophole was that insurance premiums were tax-deductible, but insurance payouts were not taxed. Wikipedia has an explanation http://en.wikipedia.org/wiki/Corporate-owned_life_insurance#..., but I don't fully understand it.


It's exactly as you say.

Let's say you have $1 million in profit this year. You can pay 35% corporate income tax on it, $350,000.

Or you could buy $1 million in insurance which is a deductible business expense, pay no taxes at all and have "no profit". Then, as employees die, you collect $950,000 in completely tax free insurance payouts (the $50,000 is the insurance overhead).

You just saved $300,000 in taxes and have a $950,000 a year untaxable profit. For tax purposes, your company is unprofitable, but for profit purposes you are doing great.


This doesn't do a very good job of explaining the tax consequences, but: "Wal-Mart, which said it canceled its policies in early 2000 because it was losing money on the arrangement, says the program was intended to reduce its income taxes to help pay rising employee health care costs." -- http://news.tbo.com/news/metro/MGB5SEJVN3F.html


Over the long term wouldn't a company lose money on life insurance policies such as this? If you are buying insurance then you are betting that you are better at actuary analysis than the insurance company. Insurance companies are for-profit entities.

Insurance is useful for protecting against large losses that would impact your solvency, so I don't understand why Wal-Mart would have had these policies in the first place.


Ya, if it was straight up insurance it wouldn't have made sense. The (theoretical) benefit was from some sort of tax thing that I honestly don't understand. Something about borrowing the money to pay the premiums now (so you pay less taxes now) and then ?somehow? not just having to pay the taxes later when the insurance got paid. Or something like that?


You don't have to beat the actuaries. The actuaries just have to take less profit than what you would have paid in taxes for the plans.

With perfect prediction (actuary tables), you would break even minus the profit of the insurance company. Since you paid the premiums with before tax money and the benefit is tax free, you make money depending on the relationship between your tax rate and the insurance "tax."


In this instance you don't have to beat the insurance company, you only have to beat taxes.


if Walmart actuaries knew that Walmart employees die sooner than non-empoyee peers...


I think the way it works is the company sets up an offshore subsidiary to provide life insurance to its employees in a low tax jurisdiction. Next, they pay life insurance premiums to the offshore subsidiary, and the offshore subsidiary books the profits on the life insurance policy offshore.

For example, suppose they pay $1,000,000 premiums to the offshore subsidiary, and then pay out $800,000 in claims. The offshore subsidiary has a profit of $200,000, and the on-shore company has an extra $200,000 to write off.


They had a financial interest in the deaths of their employees. Bob in Housewares in Dubuque dies in a car accident, and his employer profits. That just creates all kinds of messed up incentives.

It's just plain f'ed up.

And they weren't just insuring key persons, whose untimely demise could actually result in costs to the company that would be worth hedging against.


How is a company buying life insurance policies on employees that pays out to the company (and not their families) in any way comparable to this? Yes, that's common practice. This is not.


Legal? Perhaps. Ethically questionable? Certainly.


Somewhat random (but non-trolling!) question: Why is it considered good for Google to give its employees lavish benefits while it's considered extravagant for Wall Street companies to give lavish benefits? I personally feel this is a valid way of viewing things (I may be biased), but I can't quite put my finger on why.


Because Google has never been bailed out by taxpayers. The idea that Wall Street was able to socialize its losses and claim all its gains for itself, and then go right back to paying out extremely high amounts, is what rankled people a lot more than "those benefits are lavish, per se".


Larry and Sergey get free parking for their private jets at a NASA facility. Google has its feet as under the government table as Goldman Sachs. In the UK, they evade tax by hiding profits offshore. They just have better PR.


Not quite free:

"How did the two billionaires get such a coveted parking place? Officials at NASA Ames Research Center said the space agency signed an agreement signed last month that allowed it to place instruments and scientists on planes owned by principals of H211, which in addition to the Boeing 767-200 includes two Gulfstream Vs, to collect scientific data on some flights. In exchange, NASA will receive about $1.3 million in annual fees for being host to the plane at Moffett, said Steven Zornetzer, associate director for institutions and research at NASA Ames Research Center."


Most Google employees are not Larry or Sergey.


Why, then, do we not blame the government instead of Wall Street?


When guy A gives guy B money to lift him out of bankruptcy and guy B spends it on crack and hookers, most of us blame guy B.


If that were guy A's money, that would make sense. But it is not guy A's money.

If guy A takes money from guys C - ZZZZZZ in order to give that to guy B, without setting many restrictions or even punishing guy B, and guy B spends in on crack and hookers... we blame guy B? Sure, guy B was a scumbag, but guy A was the one who took and misappropriated the capital in the first place. Not to mention the actions of guy B that led up to his needing money were actively encouraged by guy A.


Not to strain this metaphor to the breaking point, but guy A is, in theory, a representative of guys C-ZZZZZZ, and they have recourse when they're angry at his actions. More importantly, guy A IS being held accountable; there's a lot of anger at the government as well over the bank bailouts (and the attendant lack of conditional guarantees). even in the situation you're describing, of COURSE one would blame guy B (along with guy A). Coincidentally enough...that's exactly what's happening.


Much of the objection has been that those benefits have been tied to high degrees of risk taking, which has demonstrably harmed the system. People who royally screw up and do extremely questionable things getting millions and millions of dollars. The same isn't true of Google's benefits in any way.

Though I've answered it in earnest, your question really does strike me as trolling - it implies pretty heavily that the only reason anyone could ever complain about Wall Street's incentive structure is for irrational emotional reasons, like they are jealous communist types.


I didn't mean to imply that at all. I'm merely trying to reconcile the different standards we (myself included) apply to Wall Street and Google.


Order of magnitude compensation difference (non exec salaries at google, acquihire signing bonuses aside, top out at what, 150-200k?), the fact that they sell services instead of maybe-kind-of-only being a middleman, blah blah blah.


Perception of how the money is made. Generalizing a bit, but most people feel that Google earned the money honestly while Wall Street got their money dishonestly.


It's pretty simple really. People don't like the fact that Wall Street is paying out very high bonuses so soon after many of the companies were bailed out with taxpayer money.


You're comparing a $20 month life insurance plan incredulously to bonuses sometimes in the hundreds of thousands PR millions of dollars sometimes inspire of bad or selfish decisions?


I'd be willing to bet money that after you add up the salary, bonuses, and benefits, the amount of money Google spends on the average Googler isn't all that much different from the average investment banker.


Wow, this is the same guy who decided that engineering managers cannot share with their reports the calibration number which is the basis for all their variable compensation calculations. I wonder if you keep the same number after you die or if they set it to 0 since you're not really contributing as much any more.


This is in addition to regular life insurance that Googlers get, not instead of.


This sounds great when you write it like this, but it's a $10 a month life insurance policy. If they have another regular life insurance policy that's fine, then it's $20 a month. Not exactly mind blowing when we are talking 6 figure salaries. Awesome, everyone just got a .1% raise. yay.


As admirable as this is (they're basically giving employees a free, low hassle premium life insurance plan), I can't help but feel that this is a will calculated way to widen the gap between goog and startups. I imagine employee spouses have a huge reason now to talk their partners out of leaving their cushy job. 'If not for yourself then think of us...'


Isn't that kind of the point of benefits? Make your company more attractive than the next, for potential new hires


That argument is true for just about any company's benefits. Even without this, startups generally offer much less in the way of life insurance, health insurance, time off, and various miscellaneous benefits. All of these provide a much higher quality of life to the family than their absence, and most of them even operate while the employee is alive. :-)

If a spouse is already supportive enough of the startup choice to forgo all that? I doubt the extra google life insurance will change their mind.

(Incidentally, I also think that the most responsible thing you can do if you have a family and you're founding or joining a startup, is to buy your own high-value life insurance policy immediately.)


I think there are many significantly more important reasons that differentiate Google and start ups that can not be compensated by paying into a private life insurance plan (that all start up's I've previously worked at had an option for).


When startups offer higher salaries or better working conditions or other benefits than other startups, they are engaging in "a calculated way to widen the gap" as well.

Is the problem that Google is too big to do grossly unfair things like trying to retain employees by treating them well?


That's just proof that half a day's of work isn't productive anyway. The guy lives, gets half of his salary for trying to do work and the other half of actually doing it. The guy dies, the productive half of his salary disappears but the unproductive half continues. :)


Wow, Google's a great place to die.


Google is a great place to have your partner work there, then let your partner die...


While you work at Google, you get a personal benefit from this policy which tracks with your degree of anxiety about the financial impact of your death.


As the original article states, this benefit will mean more to older employees. Do HNers think this will lead to the median employee age at Google increasing over time?


Wow..loved last line of the post.."Google has an interest in being seen by its staff not just as a place of work, but as a way of life. Even in death."


I can see the headlines now: "Is Google's Generous Post-Death Policy the New Unfunded Pension Liablity?"

EDIT: Google's policy is not life insurance. The post-death salary payments appear to come out of Google's pockets, not the pockets of an insurer or reinsurer. /EDIT

This may help Google compete right now, but in the long run, it will be the same drain on the company's resources that pensions were for Detroit. When Detroit was giving out pensions like candy, it was the top-grossing industry in the world; they were making margins close to what Apple makes today. It helped them recruit the best and brightest talent. But then a funny thing happened: the market corrected itself. Cars stopped earning bank. Margins fell, and even the biggest carmakers started going out of business.

We're in the glory days of the web industry, the only difference being that most websites don't even make money before getting sold. But investors will catch on, eventually, like they always do. And when that happens, policies like this will start to go away, just like they did for Detroit.


Short term life insurance is far less than risky than lifetime pension.


Larry Page probably got health issues (he lost his voice) that lead to this




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