The Office of General Counsel issued the following opinion on June 2, 2005, representing the position of the New York State Insurance Department.
Re: Charitable Donation of One Year of Life Insurance Premium
Question Presented:
May an insurance broker pay the premium for one year on a life insurance policy as a charitable donation?
Conclusion:
An insurance broker may not pay the premium for one year on a life insurance policy as a charitable donation because such payment is a violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005).
Facts:
A Vice President of an insurance brokerage firm states that a religious institution with which he is associated conducts an annual charity auction and that he would like his firm to donate one-year of life insurance. In particular, he would like his firm to pay the premium (up to a maximum of $2,500) for the first year of a life insurance policy issued in New York and written by a specific insurer for a twenty year term insurance or universal life policy. The firm would collect the commission on the sale of the insurance policy.
Analysis:
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005) states:
(c) No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract. (emphasis added)
N.Y. Ins. Law § 4224(c) thus prohibits, among other things, insurance brokers from paying the premium on a life insurance policy as an inducement to purchase insurance. The planned charitable donation constitutes the kind of payment that is prohibited under § 4224(c). The proposed payment of the first years premium of a new life insurance policy (up to a stated maximum) is an inducement to purchase insurance.
Thus, the charitable donation that the broker is contemplating giving would constitute a rebate and/or inducement in violation of § 4224(c).
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.