N.Y. Insurance Law § 3205: Insurable interest in the person; consent required; exceptions

§ 3205. Insurable interest in the person; consent required;

exceptions. (a) In this section:

(1) The term, "insurable interest" means:

(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 enhanced in value by, the death, disablement or injury of the

insured.

(2) The term "contract of insurance upon the person" includes any

policy of life insurance and any policy of accident and health

insurance.

(3) The term "person insured" means the natural person, or persons,

whose life, health or bodily safety is insured.

(b) (1) 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.

(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.

(3) 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.

(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.

(c) No contract of insurance upon the person, except a policy of group

life insurance, group or blanket accident and health insurance, or

family insurance, as defined in this chapter, shall be made or

effectuated unless at or before the making of such contract the person

insured, being of lawful age or competent to contract therefor, applies

for or consents in writing to the making of the contract, except in the

following cases:

(1) A wife or a husband may effectuate insurance upon the person of

the other.

(2) Any person having an insurable interest in the life of a minor

under the age of fourteen years and six months or any person upon whom

such minor is dependent for support and maintenance, may effectuate a

contract of insurance upon the life of such minor, in an amount which

shall not exceed the limits specified in section three thousand two

hundred seven of this article.

(d) In addition to any other basis under which either an employer, or

an irrevocable trust established by one or more employers or one or more

employers and one or more labor unions, have an insurable interest in

the lives of any of its employees or retirees or those of its

subsidiaries or affiliated companies, an employer or such a trust shall

have an insurable interest in the lives of any such employees or

retirees who are participants or who are eligible to participate, upon

the satisfaction of age, service or similar eligibility criteria, in an

employee benefit plan, established or maintained by an employer as

defined by the federal Employee Retirement Income Security Act of 1974,

29 U.S.C. § 1001 et seq., provided that:

(1) The employer providing for insurance coverage or causing such

coverage to be issued under this subsection: (A) prior to or at the

commencement of any such coverage notifies prospective insureds in

writing that coverage is being obtained on their lives, requires that

prospective insureds consent in writing to such coverage, provides each

consenting insured the right to have any coverage on his/her life issued

under the authority of this subsection discontinued at any time and

describes in the notice the method the insured may use to terminate

coverage; (B) at the time any insured employee's employment terminates,

notifies the employee of the right to discontinue such coverage,

provided, however, that no such notification shall be required if the

insured employee possesses a present or prospective right to receive any

of the benefits under an employee benefit plan being financed, in whole

or in part, by such life insurance coverage; and (C) at any time after

the termination of an insured employee's employment and upon the

termination of an employee benefit plan being financed, in whole or in

part, by such life insurance coverage or a reduction of the benefits

provided thereunder, notifies the employee of the right to discontinue

such coverage.

(2) At the time coverage is issued, the total amount of insurance

coverage issued to date to the employer or trust under authority of this

subsection shall not exceed the costs of employee and/or retiree

benefits already incurred in connection with such employee benefit plan

since the earliest date coverage on an employee or retiree was issued

under this subsection, plus the projected future cost of such benefits

as established by the employer.

(3) The amount of coverage insuring the life of each such employee or

retiree and the selection of the employees or retirees to be insured is

based purely on nondiscriminatory factors such as age, premium amount or

some other nondiscriminatory factor, and not on conditions or terms of

employment other than participation in an employee benefit plan

described herein.

(4) If subsequent to issuance of the policy or policies providing life

insurance coverage pursuant to this subsection, the insurer providing

the coverage is replaced by another insurer, the employer shall notify

each insured employee or retiree of such replacement.

(5) During the first five years subsequent to issuance of the policy

or policies providing life insurance pursuant to this subsection, the

policyholder does not undertake a pattern of borrowing likely to require

all or a substantial part of the cash values of the policies to be

pledged as security against repayment of such loans, unless such

borrowing was incurred because of an unforeseen substantial loss of

income or unforeseen increase in financial obligations.

(e) If, pursuant to subparagraph (A) of paragraph one of subsection

(d) of this section, the employer receives from the employee or retiree

written notice that he or she rejects the issuance of the insurance, the

employer shall notify the insurer of such rejection and the insurance

shall not be issued, or if the insurance has already been issued and the

employee elects to have the existing coverage terminated, the employee

shall notify the insurer of the election to terminate coverage in

writing, and upon receipt of such written notice from the employee, the

insurance shall not be continued in effect and shall terminate upon

receipt of such written notice from the employee. In such event, the

insurer shall pay any amounts which are payable to the employer or trust

policy owner as the result of such termination of coverage, pursuant to

the terms and conditions of coverage. Unless the employee or retiree

complies with the requirements of this subsection, neither the employee,

retiree nor his or her successor in interest, may contest the validity

of the coverage.