New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Eric Dinallo
Superintendent

The Office of General Counsel issued the following opinion on June 12, 2007, representing the position of the New York State Insurance Department.

Re: Interest free premium financing

Question Presented:

May an insurance producer offer interest-free premium financing to a customer whereby the provider agrees to pay the insurance premium on the insured’s behalf, and the insured agrees to repay the provider in installments with no interest?

Conclusion:

No. An insurance producer may not offer interest-free premium financing to a customer by allowing the insured to pay the designated premium in installments with no interest, because such a practice would constitute an impermissible inducement under New York Insurance Law §§ 2324 or 4224.

Facts:

No facts were provided other than those encompassed in the question.

Analysis:

N.Y. Ins. Law § 2324(a) (McKinney 2006) is relevant to your question. That statute, which applies to most contracts of property/casualty insurance, reads as follows:

(a) No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no other representative of any… such broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or written contract issued or to be issued as evidence thereof, or shall directly, or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured… as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give, any valuable consideration or inducement of any kind which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker.

Insurance Law § 4224(c) sets forth similar provisions with regard to life and accident and health insurance and annuities.

By the plain meaning of the text, an insurance agent or broker subject to the provisions of Insurance Law §§ 2324 or 4224 may not provide “any valuable consideration or inducement of any kind which is not specified in such policy or contract.” Therefore, an insurance agent or broker may not provide an interest-free loan to an insured by allowing the insured to pay the premium in installments with no interest, because such practice constitutes the giving of a valuable consideration or an inducement in violation of Insurance Law §§ 2324 or 4224.1

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.

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1 Furthermore, because the practice discussed in this opinion raises questions regarding premium financing, Section 555 of the N.Y. Banking Law is relevant.  That statute provides that “no person except a bank, state or federally chartered savings bank or savings and loan association, an authorized insurer or a [licensed] lender… shall engage in the business of a premium finance agency without a license therefore obtained from the superintendent [of banking].”