But absent meaningful regulation around the practice, it grew unchecked, and soon companies were taking out policies on many poorly paid employees like janitors, then reaping millions in profit when they died.
A string of class-action lawsuits, some filed by Mr. Myers, went after companies abusing the practice. Several companies, including Walmart, settled the suits, paying millions to low-ranking employees who had been covered. The I.R.S. took companies including Winn-Dixie and Camelot Music to court for using policies as tax avoidance schemes.
Critics began calling the policies "dead peasant" insurance, an allusion to Nikolai Gogol's novel "Dead Souls," in which a con man buys up dead serfs to use them as collateral in a business deal.
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Despite the criticism, companies and banks continued to use the policies to chase returns. In the years before the financial crisis, life insurers for banks including Wachovia and Fifth Third Bancorp invested their premiums in a hedge fund run by Citigroup.
As the value of the fund rose, the profits were recorded on the companies' balance sheets, raising earnings. But when the hedge fund collapsed during the market panic, so did the value of the policies, leading the banks to take substantial write-downs.
Efforts have been made to better regulate the practice. The 2006 Pension Protection Act included a set of best practices for companies taking out life insurance on employees.
"The government has taken great strides to clean it up," said J. Todd Chambley, who runs the executive benefits practice at Aon Hewitt.
Still, the notion of life insurance policies benefiting company balance sheets, rather than individuals, remains subject to criticism.
Responding to attacks on the Freedom Communications plan, Mr. Kushner defended himself in a letter to employees. "Life insurance is not ghoulish, nor are the people who sell it, nor are those who buy it," he wrote. "Life insurance, by its very nature, was created to benefit the people we love and care about most."
— By David Gelles, The New York Times