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.
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.
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.
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."
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.
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.