The Office of General Counsel issued the following informal opinion on January 22, 2001, representing the position of the New York State Insurance Department.
RE: Assignment of Insurance Certificate
1. May an individual designate a funeral director as beneficiary on a certificate of insurance, or transfer ownership of an insurance certificate to a funeral director for the purpose of funding a pre-need burial arrangement?
2. Does New York State have a mechanism (other than opening a probate estate) for collecting very small assets and using them to pay debts or burial expenses of a deceased individual?
1. No. This would violate N. Y. Ins. Law § 3208(d) (McKinney 2000), which prohibits an assignment of an insurance policy if the assignment becomes irrevocable upon the death of the insured.
2. There is no such provision in the N. Y. Ins. Law (McKinney 2000).
A representative of a fraternal benefit society with a home office in Illinois stated that its members frequently asked to either designate a funeral director as a beneficiary on a certificate of insurance or transfer ownership of the certificate for the purpose of funding a pre-need burial arrangement. The representative asked if this is permissible under New York Law.
The representative also stated that it is contacted by survivors of members who have outlived their designated beneficiaries and who have no surviving relatives in the classes the society is permitted to pay proceeds to based on an affidavit. Under the by-laws of the fraternal benefit society, the benefit would go to the estate of the insured. The representative asked if there is a mechanism in New York for collecting these small assets and using them to pay debts or burial expenses of a deceased without having to open a probate estate.
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:
(1) deliver or issue for delivery in this state any contract or policy whereby the benefit or any part thereof accruing under such contract or policy, upon the death of such member or of the person insured, shall be payable to a designated or restricted funeral director or funeral directing concern or other person engaged in such trade or business, or to any official or designated group of them; or
(2) pay any such benefit or any part thereof to any funeral director or funeral directing concern or other person engaged in such trade or business or to any official or designated group of them, without the consent of the person or persons entitled to such benefits; or
(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.
Pursuant to the above, an insured may not designate the funeral director as the beneficiary on the certificate of insurance, nor may a policy or certificate of insurance be assigned in a manner that would lock the personal representative or family into making arrangements with a particular funeral home upon the insureds death. 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. Therefore, participation in either arrangement clearly falls within the prohibition of the statute.
N.Y. Gen. Bus. Law § 453 (McKinney 1996 & Supp. 2000) also addresses moneys paid in connection with agreements for funeral merchandise or services in advance of need.
With respect to a mechanism that would allow for the collection of small assets for use in paying debts or burial expenses of a deceased without having to open a probate estate, there is no provision in the N. Y. Ins. Law (McKinney 2000) that addresses this question. A review of the N. Y. Est. Powers & Trust Law (McKinney 1998 & Supp. 2000) and contact with the New York County Surrogates Court may provide additional information.
For further information you may contact Associate Attorney Joan Siegel at the New York City Office.