Google Keeps Paying Deceased Employees' Families for a Decade
theatlantic.com
theatlantic.com
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.
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?
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%.
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.
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.
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.
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.)
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.
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.
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.
... 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?
OK. Give me your postal details, pay me $1000 per month, and I can organise that for you.
I wouldn't say that on average my co-workers are "younger" (than whom?). Healthier, maybe.
If I wasn't paying for my own separate insurance, I probably would've been easier to wow with this.
"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.
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.
If and when Google's revenues fall, expect to see benefits like this slowly dry up.
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.
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.
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.
Otherwise, it's not comparable
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?
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 nice benefit, but it's on the same extravagance level as providing free coffee.
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.
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.
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.
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.
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...
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.
Pretty sure Google would have run the numbers on that.
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?
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.
What, by making "working at Google" better than "not working at Google"?
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 :)
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.
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.
http://consumerist.com/2007/07/walmart-took-secret-life-insu...
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.
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."
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.
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.
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.
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.
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.
"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."
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.
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.)
Is the problem that Google is too big to do grossly unfair things like trying to retain employees by treating them well?
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.