The Office of General Counsel issued the following informal opinion on November 16, 2004, representing the position of the New York State Insurance Department.
Re: Charitable donations and rebates
Question Presented
May a New York licensed insurance agent or broker sell to a charitable donor of a specific charity a life insurance policy, and agree that the commissions earned from such sale will be donated to that same specific charity, or to any other charity?
Conclusion
No. A New York licensed insurance agent or broker may only donate a portion of his or her commissions earned from the sale of life insurance policies, to charities if: (1) prospective clients and insureds have no direct or indirect influence over which charities receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for such charitable contributions, or any other benefits - whether tangible or intangible, direct or indirect - stemming from such donations, inure to an insured or prospective client.
Facts
The inquirer presented the following situation. The inquirer knows of certain board members of a charity who would like to donate to the charity the commissions from the sale of life insurance policies on themselves.
The inquirer also presented several scenarios involving the licensing of the not-for-profit itself as a life insurance agent, and the inquirer wanted to know whether a not-for-profit organization could be licensed as a life insurance agent.
Analysis
With respect to life insurance N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004) states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004) prohibits insurers, brokers, agents and others from directly or indirectly paying, allowing or giving, or offering to pay, allow or give any valuable consideration or inducement in connection with life insurance policies or contracts when such valuable consideration or inducement is not specified in such insurance policies or contracts.
The Insurance Department has opined that an agent's donation to a charity, which is selected by the agent's prospective client, confers an intangible benefit or consideration to the prospective client, and acts as an inducement for the prospective client to place insurance through such agent in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004). Office of General Counsel Opinions 02-12-03; 00-03-12; and 92-123.
However, a New York licensed insurance agent or broker may only donate a portion of his or her commissions earned from the sale of life insurance policies, to charities if: (1) prospective clients and insureds have no direct or indirect influence over the choice of which charities receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for such charitable contributions, or any other benefits - whether tangible or intangible, direct or indirect - stemming from such donations, inure to an insured or prospective client.
The inquirer's next question was regarding whether a not-for-profit organization could be licensed as a life insurance agent. The Department only opines on the New York Insurance Law, which contains no prohibition against not-for-profit charities becoming licensed as life insurance agents. However, other restrictions regarding such licensure may exist in either the not-for-profit corporate law; in other relevant laws; or in the corporate by-laws of the charity itself. Assuming that there are no other restrictions barring such licensure, in order for the Department to determine whether that licensee was acting lawfully, the Department would have to be advised of all details of such licensee's activity.
At this time, based upon the partial plans that the inquirer proposed for the not-for-profit charity that currently is not licensed as a life insurance agent, the Department cannot determine whether the proposed activities of such charity would be within the scope of the New York Insurance Law. The inquirer may feel free to submit a new inquiry once the inquirer has determined that there are no other legal impediments preventing the not-for-profit from obtaining a license as life insurance agent, and the inquirer's plans for this not-for-profit life insurance agent have become finalized.
For further information one may contact Susan Dess, Senior Attorney at the New York City Office.