The office of General Counsel issued the following informal opinion on June 8, 2000, representing the position of the New York State Insurance Department.
Re: Assignment of a Life Insurance Policy in connection with a Prepaid Funeral.
Would there be a violation of the N. Y. Ins. Law (McKinney 1984 & Supp. 2000) if an individual were to assign a life insurance policy on which he is the insured as payment for a prepaid funeral?
Under the facts described, the acceptance by an insurer of an assignment of a life insurance policy that becomes irrevocable upon the insureds death would violate N. Y. Ins. Law § 3208 (McKinney 1984).
Your client is a funeral home that is trying to make arrangements for a prepaid funeral with an interested individual. It was suggested to the individual that the prepaid funeral could be paid for by the assignment of a life insurance policy presently in the individuals name. The assignment would be of the entire policy and would be revocable until the time of death. Upon the death of the insured, the assignment would become irrevocable and the personal representative or family of the deceased would be locked into making arrangements with your clients funeral home.
N. Y. Ins. Law § 3208 (McKinney 1984) provides, in pertinent part, as follows:
(d) No person, firm, association, society, or corporation engaged in this state in the business of providing for payment of funeral, burial or other expenses of deceased members, whether or not it be subject to the other provisions of this chapter, and no insurer shall:
. . .(3) in any way deprive the personal representative or family of the deceased of the advantages of competition in procuring and purchasing supplies and services in connection with the burial of such deceased.
If an insurer were to accept an assignment of a policy that, as described above, locked the personal representative or family into making arrangements with a particular funeral home upon the insureds death, it would be participating in an arrangement that clearly falls within the prohibition of the statute. Once locked in, the personal representative or family of the deceased would no longer have the opportunity to choose another funeral home and, consequently, would be deprived of "the advantages of competition in procuring and purchasing supplies and services" in connection with the funeral and burial of the deceased. Moreover, the assignment of the policy raises issues concerning "insurable interest" which is treated under N. Y. Ins. Law § 3205(McKinney 1984 & Supp. 2000).
For further information you may contact Associate Attorney Joan Siegel at the New York City Office.