Sandel talks morality of life insurance

“We think of gambling and insurance as two different responses to risk, but the line between the two has always been unstable,” Sandel said. “The close connection between insuring lives and betting on them has led many to regard life insurance as morally repugnant.”

Sandel, who teaches the popular introductory ethics course “Justice” at Harvard, based his lecture on the ethical questions that markets raise, from “janitor’s insurance” — the life insurance a company may take on a low-ranking employee — to the Pentagon’s scheme in the early 2000s of creating an online gambling website where users could bet on future terrorist attacks.

“Should companies be able to profit from the death of their employees?” Sandel asked.

He described janitor’s insurance through the real-life example of a Walmart assistant manager who died of a sudden heart attack while at work. Walmart had taken life insurance on the employee without informing him, and the company received $300,000 as a result of his death, effectively making the employee worth more dead than alive.

“Allowing companies a financial stake in the demise of their employees is hardly conducive to workplace safety,” Sandel said. He also posed the question of whether the moral conflict lay in the fact that the employee had never consented to the life insurance policy.

In contrast, he described viatical settlements, which allow an ill individual to voluntarily trade his life insurance compensation for immediate cash provided he can find an investor.

“The investor turns a handsome profit provided the person dies on schedule,” Sandel said.

But viaticals, as with any other type of insurance, Sandel said, carry a risk. If the person does not die in time, the investor will see his profits diminish. If the person makes a recovery, the investor’s profit could disappear.

“The financial risk creates a moral complication,” Sandel noted. “The investor must hope that the person whose life insurance policy he buys dies sooner rather than later.”

In other words, Sandel explained, the investor has a “rooting interest” in the death of his client, just as a corporation with janitor’s insurance policies has an interest in the early demise of its employees.

However, he distinguished janitor’s insurances and viaticals from gravediggers and corpse collectors, who, even though they still profit from death, do not have a “rooting interest” for particular individuals but will be satisfied with any death.

In the end, he explained, excessive financial speculation has a corrosive effect on the character of the investor because of the conflict of interest between life and investment, expressed in blurring the lines between gambling and investing, as exemplified through life insurance.

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“As today’s massive market of death attests, the hard-fought effort to disentangle gambling from insurance has come undone,” Sandel said. “Would you want to make a living betting that people will die sooner rather than later?”

Sandel delivered the annual Walter F. Murphy Lecture in American Constitutionalism in McCosh 50. It was sponsored by the James Madison Program in American Ideals and Institution and co-sponsored by the Program in Law and Public Affairs and the University Center for Human Values.