The Office of General Counsel issued the following opinion on June 3, 2003, representing the position of the New York State Insurance Department.
Re: Insurable Interest- N.Y. Ins. Law § 3205
An individual wishes to provide a special service wherein she would obtain life insurance for clients and pay for all premiums. The clients would make an initial payment of approximately $150-200 for a 5-year policy. If the client/policyholder dies, the individual would then collect the payment and, minus an agreed upon percentage, disburse the remaining amount to the beneficiary. Is such proposal permissible?
No. The proposed service would violate N.Y. Ins. Law § 3205 (McKinney Supp. 2003), and is therefore not permissible.
As described above.
New York has a strong public policy against speculation on the death of individuals. Accordingly, one may not, with limited exceptions, take out a policy of life insurance on the life of another. If such a policy is procured, the benefits must be payable to the person insured, his personal representative or a person having an insurable interest in the person insured.
N.Y. Ins. Law § 3205(a)(1) (McKinney Supp. 2003) defines "insurable interest" as:
(A) in the case of persons closely related by blood or by law, a substantial interest engendered by love and affection;
(B) in the case of other persons, a lawful and substantial economic interest in the continued life, health or bodily safety of the person insured, as distinguished from an interest which would arise only by, or would be in enhanced in value by, the death, disablement or injury of the insured.
N.Y. Ins. Law § 3205(b)(2) and (b)(4) (McKinney Supp. 2003) state the following:
(b)(2) No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured.
(b)(4) If the beneficiary, assignee or other payee under any contract made in violation of this subsection receives from the insurer any benefits thereunder accruing upon the death, disablement or injury of the person insured, the person insured or his executor or administrator may maintain an action to recover such benefits from the person receiving them.
While it is the law in New York that one may name any individual as a beneficiary and that such person is deemed to have an insurable interest, Section 3205(b)(2) of the Insurance Law prohibits the solicitation of assignment of life insurance policies for the benefit of one not having an insurable interest. Here, the inquirer does not have an insurable interest in the lives of the proposed clients. Additionally, Section 3205(b)(4) of the Insurance Law provides that the executor or administrator of the person insured may recover the proceeds from the assignee.
Therefore, the proposal is contrary to the public policy and statutes of New York and may not be implemented. Because of this, it is not necessary to discuss in detail the other issues raised by this inquiry. However, briefly stated, if the proposed service was not in violation of the Insurance Law, a license as an insurance agent or broker pursuant to N.Y. Ins. Law § 2101(a) and (c) (McKinney 2000) would be needed.
For further information you may contact Associate Attorney Meredith Kaufer at the New York City Office.