HHGregg faces lawsuit over incentive bonuses from 70 managers

Theo Thimou | March 24th, 2017

Team Clark is adamant that we will never write content influenced by or paid for by an advertiser. To support our work, we do make money from some links to companies and deals on our site. Learn more about our guarantee here.

HHGregg is in the news a lot these days, but here’s a story about the beleaguered retailer that you’re probably not hearing anywhere else…

Companies taking out life insurance policies on employees

Have you ever heard of ‘janitor’s insurance,’ which is also known as ‘dead peasants insurance’? This is a policy taken out by some employers on their employees so the company can collect money in the event of the employee’s untimely death.

That practice has landed HHGregg in court — not because it’s illegal (it’s not) — but for a whole different reason altogether.

TheIndianaLawyer.com reports about 70 HHGregg managers claim they should have received incentive bonuses of $25,000 each when the company hit certain yearly financial goals back in 2012.

However, the company says it only hit those goals because it collected a $40 million payoff from a janitor’s insurance policy taken out on an executive who died. So HHGregg balked at paying the managers the bonuses — which would have amounted to around $1.75 million — and then the managers sued.

The managers initially won in an Indiana trial court, but the Court of Appeals reversed and ruled for the company. Now the case is being heard in the Indiana Supreme Court.

Regardless of the outcome of this particular case, it’s a great teaching moment about janitor’s insurance specifically and life insurance in general.

Why would a company want to take out a life insurance policy on its workers?

The answer to this question is a complex one. On the most basic level, a company has invested time and resources into an employee, which could justify wanting such a policy should that employee die.

But taking a deeper dive, DeadPeasantInsurance.com reports there are various other reasons.

First, any money the company receives from the insurer is tax-free. Beyond that, companies can also reportedly get access to additional loans through the policy. Finally, the premiums are deductible from company profits.

So there is actually a lot of incentive for companies to do this!

How do you know if you have one of these policies out on your life?

Several ways actually!

1. You’ll be notified in writing that your employer is considering taking out a policy and for how much.

2. You’ll be asked to give your consent to be covered during and even possibly after your employment.

3. You’ll be told in writing if your company will be a partial or sole beneficiary of accrued death benefits.

4. DeadPeasantInsurance.com has a list of companies that reportedly buy these policies on some of their employees.

What does Clark think about janitor’s insurance?

”Key man insurance’ — as it’s called in the industry — when taken out on an executive who moves the needle on sales or other business is fine,’ Clark says. ‘But you have to draw the line at taking it out on rank-and-file workers. The benefit of a life insurance policy on an average employee should go to that’s person family, not to the company.’

This is exactly why you should have your own life insurance policy!

This discussion of life insurance highlights the importance of having your own policy, for the benefit of your family and heirs. Insurance industry research group LIMRA reports that three out of five Americans own their own life insurance policy, which is great!

The bad news? Another 40% of us have no coverage in place in the event of our untimely passing.

A lot of people shy away from life insurance simply because they don’t understand it. Here are some common questions about life insurance and the answers you need to know to make an informed decision.