2023 New York Laws › ISC - Insurance › Article 32 - Insurance Contracts - Life, Accident and Health, Annuities › 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.