The Office of General Counsel issued the following opinion on February 9, 2005, representing the position of the New York State Insurance Department.
Re: Revocable Contingent Assignment of Death Benefits Under a Life Insurance Policy to a Specific Funeral Home
May a revocable contingent assignment of the death benefits payable under an insurance policy or certificate be made to a specific funeral home?
Yes. Provided that during the lifetime of the policyholder the policyholder has the right to revoke the assignment and that, upon the death of the insured, the insureds personal representative or family retains the freedom to choose a different funeral home and/or different services, supplies or merchandise, such an assignment would be permissible.
The following information was provided by letter to this Office:
Two approaches are commonly used when life insurance is the funding vehicle for a prearranged funeral. The first provided by The ABC Group Inc., as ABC Funeral Planning, consists of two components: a life insurance policy specially designed to fund a funeral plan, with a named beneficiary other than the funeral home, and a funeral planning agreement for future delivery of funeral merchandise, supplies and services chosen by the insured and his or her family. At the time of entering into the funeral planning agreement setting forth the insureds desired funeral arrangements, the policyholder or certificate holder executes a revocable contingent assignment of the death benefits of the life insurance policy to the specific funeral home for the funeral merchandise, supplies and serves promised in the funeral planning agreement.
Nothing contained in the revocable contingent assignment prohibits the insured, or the insureds personal representative or family from selecting a different funeral home or different funeral merchandise, supplies and services. In the event that such funeral merchandise, supplies and services are not actually delivered, the death benefit under the life insurance policy would be paid in cash to the named insurance beneficiary, not the specific funeral home.
The second method of making life insurance available to fund a prearranged funeral is the sale of life insurance policy/certificate to a consumer, without first entering into a preneed funeral contract. The life insurance proceeds may not be immediately assigned to a specific funeral home, but may subsequently be assigned at a later date. In either instance, the assignment would always be contingent upon the actual delivery of funeral merchandise, supplies and services, and the policyholder or the insureds personal representative or family would retain the right to select a different funeral home and different funeral merchandise, supplies and services.
N.Y. Ins. Law § 3208(d) (McKinney Supp. 2004) provides:
(d) No person, firm, association, society, or corporation engaged in this state in the business of providing for the 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 to pay any commission or other consideration to any funeral director or funeral directing concern or employee thereof to induce such person to sell or offer to sell any contract or policy of insurance designated or marketed as payable for funeral or burial expenses upon the death of the insured; 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 funeral and burial arrangements of such deceased.
By letter to this Office, various Office of General Counsel opinions were cited that establish the parameters for an acceptable preneed program.1 It was posited to this Office that the ABC Funeral Planning program comes within those parameters and, accordingly, is not proscribed by N.Y. Ins. Law § 3208(d) (McKinney Supp. 2004) for the following reasons:
The named beneficiary of the life insurance policy funding the funeral arrangement is not a specific funeral home.
By entering into a revocable contingent assignment of the death benefits to a specific funeral home, the insured has given his or her written consent to pay such benefits, or a part thereof, to such funeral home.
After the death of the insured the beneficiary may choose not to direct the death benefits, or a part thereof, to a specific funeral home for a pre-arranged funeral, under the provisions of a revocable assignment but may elect to do so.
Because the assignment is revocable and contingent, the insured, the insureds family and the insureds personal representative are not locked into any pre-arranged funeral, but retain the right to select a different funeral home and different funeral merchandise, supplies and services after the insureds death.
Additionally, it was stated that the revocable contingent assignment of the policy is in conformity with the insurable interest requirements contained in N.Y. Ins. Law § 3205 (McKinney Supp. 2004), specifically paragraph (1) of subsection (b), which provides:
Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated. (Emphasis added).
It is the opinion of this Office that the ABC Funeral Planning Program, as described above, is not proscribed by either N.Y. Ins. Law § 3205 or N.Y. Ins. Law § 3208(d)(1), (d)(2) with respect to the required consent and (d)(3) (McKinney Supp. 2004). However, please note that this letter does not address N.Y. Ins. Law § 3208(d)(2) (McKinney 2004), which prohibits the payment by an insurer of any commission or other consideration to a funeral director, funeral directing concern or employee thereof, even if licensed as an insurance agent.
Please note that this opinion does not address whether the ABC Funeral Planning Program is in compliance with Section 453 of the NY General Business Law or Section 3450 of the NY Public Health Law.
For further information you may contact Deputy Superintendent and General Counsel Audrey Samers at the New York City Office.
1 Office of General Counsel Opinions 7-15-91, 3-1-95, 8-19-98, 6-6-2000, 9-15-2000 and 1-22-2001.