The Office of General Counsel issued the following opinion on July 7, 2003 representing the position of the New York State Insurance Department.

Insurable Interest Requirement (Life Insurance)


1. In the proposed transaction, does the below-described Sponsor have an insurable interest as described in N.Y. Ins. Law § 3205 (McKinney Supp. 2003)?

2. Is such insurable interest adversely affected by the facts that the Issuer Trust is organized under Delaware law, the Sponsor may not be organized under New York law, or that the collateral for the Bonds may consist of the Policies of nonresidents of New York?


1. Although the Sponsors may be allowed to obtain an insurable interest in the lives of their donors, the transaction as described does not conform with the statute’s purpose and would not be allowed.

2. The insurable interest is adversely affected by the fact that the Sponsor may not be a New York entity. The other factors are immaterial to the analysis of the transaction.


You are counsel for one or more Delaware statutory trusts planned to be formed by one or more non-profit charities and are inquiring about the permissibility of an arrangement described as follows:

One or more charitable organizations formed under New York or another state’s laws and qualifying under sections 170(c) and 501(c)(3) of the Internal Revenue Code ("Sponsor") will form a Delaware statutory trust ("Issuer Trust"). The Sponsors will own the entire beneficial interest of the Issuer Trust, which will be formed as a bankruptcy remote special purpose vehicle solely for the purpose of issuing and offering collateralized endowment bonds (the "Bonds"). The Bonds will be collateralized by guaranteed premium universal life insurance policies ("Policies") and single premium immediate annuities issued with respect to the lives of individuals associated with the Sponsors ("Associates") for the benefit of the holders of the Bonds. At the close of the Bond offering, the Issuer Trust will transfer the proceeds from the sale of the Bonds to the Sponsor in an amount sufficient for the Sponsor to purchase the Policies and the Annuities. The Sponsor will then immediately assign all benefits and rights under the Policies and Annuities to the Issuer Trust who will in turn pledge such benefits and rights as collateral to a trustee (Trustee) under an indenture of trust (Indenture), for the benefit of the bondholders. The Sponsor remains the owner of the Policies and Annuities and the beneficiary under the Policies and Annuities while the Bonds are outstanding. After the Bonds are paid in full, the Policies and Annuities will be released as collateral and returned to the Sponsor.

The transaction will require a pool of approximately 100 Associates (residents and nonresidents of New York), each of whom will provide written consent to the Sponsor to purchase, own and name itself as beneficiary of a Policy and otherwise acquire an insurable interest in such Associate’s life. Each Associate will also consent to the pledging of the Policy as collateral under the Indenture. Each of the Annuities will provide for periodic payments during the life of its respective Associate, and each of the Policies will provide death benefits upon the death of insured Associate. The payments and benefits under the Policies and Annuities will be made to or for the benefit of the Trustee and bondholders, will be deposited into accounts maintained by the Trustee for the Issuer Trust and will be ultimately applied to pay the (a) the expenses of the transaction; (b) the Policy Premiums; and (c) amounts due the bondholders with respect to the bonds.


The transaction described herein appears to be a method of facilitating the use of life insurance and annuities as charitable donation vehicles on a large scale. The proposed method for this is by providing a mechanism that both facilitates the transfer of the insurable interest of the potential donors (the "Associates" herein), to the charitable donees (the "Sponsors" herein) as well as providing a method for financing the acquisition of Policies and Annuities once those interests are transferred.

The relevant provision of the New York Insurance Law in this area is N.Y. Ins. Law § 3205(b)(3) (McKinney Supp. 2003), which provides a limited exception to the general rule that prohibits the procuring of a policy of life insurance on another person unless the procurer of the policy has an insurable interest in the life of the insured. That statute provides as follows:

Notwithstanding the provisions of paragraphs one and two of this subsection, a Type B charitable, educational or religious corporation formed pursuant to paragraph (b) of section two hundred one of the not- for-profit corporation law, or its agent, may procure or cause to be procured, directly or by assignment or otherwise, a contract of life insurance upon the person of another and may designate itself or cause to have itself designated as the beneficiary of such contract.

N.Y. Ins. Law § 3205(b)(3) (McKinney Supp. 2003).

N.Y. Ins. Law § 3205(b)(3) was enacted pursuant to the Laws of 1996, chapter 510, and amended (to eliminate the five year "sunset" provision of the original) by the Laws of 2001, chapter 146. The purpose of this statute is noted in the following excerpt from a letter dated July 1, 1996, from the Superintendent of Insurance to the Governor’s Counsel.

The [New York State Senate] memorandum in support of the bill states that the ability of charities to be able to procure life insurance policies on their behalf offers a new method of fund raising for these organizations. It appears that the intent of the bill is to permit donors to enter into long term gift giving arrangements which result in posthumous endowments to the religious charitable and educational organizations.

In essence, the bill confers these charitable, religious and educational corporations with an insurable interest in the lives of their donors. This would expand the definition of insurable interest and presumably permit these organizations to solicit potential donors to enter into long term gift giving programs.

The current law permits donors by assignment of an existing life insurance policy to enter into long term gift giving arrangements resulting in posthumous endowments. Section 3205(b)(1) was amended by Chapter 334 of the laws of 1991 to proclaim the public policy of this state that an individual may voluntarily insure his or her life for the benefit of any person, firm, association or corporation and that the individual may immediately assign or transfer the contract to any other entity. … The bill would permit a direct solicitation by department licensees. Thus, a licensed insurance agent can assist in the procurement of a new life insurance policy on the life of a donor, and the charitable organization would be the policyowner and beneficiary.

Based on the above discussion, the Department recommends approval of the bill.

1995-1996 NYS Insurance Department Legislative Diary, Volume 5, Page 103.

The above-described amendment to Section 3205(b) was enacted to better enable certain charitable organizations1 to obtain life insurance policies on the lives of their donors. The provision represented an expansion of the previous law only insofar as it allowed for the direct solicitation of charitable organizations by licensees of the Department, thus eliminating, in the charitable donation context, the intervening step of requiring the Donor to first purchase the policy and then transfer the policy to the organization. The requirement remains that the charitable organization must be the beneficiary of the contract.

In the proposed arrangement, although the Sponsor is the only named beneficiary and owner of the Policies, the economic reality is that a significant portion of the proceeds of the Policies and Annuities must be diverted to provide the bondholders with a return on their investment. In addition, while the Sponsor ostensibly retains sole ownership of the Policies and Annuities, this ownership interest is compromised by the fact that the Sponsor must assign its rights under the Policies and Annuities to the Issuer Trust, which in turn must pledge them as collateral.

Under the proposed transaction, the Sponsors receive only a small portion of the economic benefit of the Annuities and Policies, and have, as a practical matter, a clouded ownership interest in the Annuities and Policies. Thus, the proposed arrangement is not consistent with the purpose of the Section 3205(b)(3). Accordingly, the arrangement is not acceptable under the New York Insurance Law.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

1 Specifically, only "Type B" corporations organized under N.Y. N-PCL § 201(b) (McKinney 2001). Accordingly, only charitable organizations formed under New York law qualify for this treatment. This is significantly more limited than the corresponding provisions contained in other state laws, which, if at all, allow the insurable interest to charitable organizations exempt from tax under Internal Revenue Code § 501(c)(3)."