OGC Opinion No. 07-09-25
The Office of General Counsel issued the following opinion on September 24, 2007 representing the position of the New York State Insurance Department.
RE: Insurable interests pertaining to individual life insurance policy
Questions Presented:
1. May a member of a synagogue, incorporated under the New York Religious Corporation Law, take out an individual policy of life insurance on his or her own life, that names the synagogue as a beneficiary thereof, and thereafter assign the policy to the synagogue?
2. May a synagogue, incorporated under the Religious Corporation Law, procure a policy of life insurance upon the life of one or more of its members, with that member’s consent, which policy names the synagogue as a beneficiary?
3. Is a synagogue, as a religious corporation incorporated under the Religious Corporation Law, considered a Type-B charitable, educational or religious corporation formed pursuant to N.Y. Not-For-Profit Corp. Law § 201(b) (McKinney Supp. 2007), for purposes of Insurance Law § 3205(b)(3)?
Conclusion:
1. Yes. Pursuant to Insurance Law § 3205(b)(1), a member of a synagogue, incorporated under the Religious Corporation Law, may take out an individual policy of life insurance on his or her own life, that names the religious institution as a beneficiary thereof, and thereafter assign the policy to the synagogue.
2. Yes. Pursuant to Insurance Law § 3205(b)(3), the synagogue may procure one or more individual policies of life insurance upon the life of one or more members that names the religious institution as a beneficiary of the policy.
3. Yes. A synagogue is, for purposes of Insurance Law § 3205(b)(3), considered a Type-B charitable, educational or religious corporation formed pursuant to Not-for-Profit Corporation Law § 201(b).
Facts:
The inquirer represents a synagogue that is a religious institution incorporated under the Religious Corporation Law. He further report that the synagogue contemplates offering one (or both) of the following programs to its members: (1) a program through which those individual members of the synagogue choosing to do so will each purchase a policy of life insurance insuring his or her life, name the synagogue as beneficiary, and then assign each of the policies to the synagogue; (2) a program through which the synagogue purchases one or more individual policies of life insurance insuring the life of one or more of its members, with each policy naming the synagogue as a beneficiary.
Analysis:
Section 3205(b)(1) of the Insurance Law establishes that an individual may voluntarily insure his or her life for the benefit of any person, firm, association or corporation (including a synagogue). That provision states:
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.
The fact pattern presented by the inquirer’s first question fits squarely within the confines of this statutory provision. Therefore, the transaction referenced by that question would appear to be lawful. However, in the second question posed – where the synagogue rather than the insured would acquire the insurance contract on which the synagogue would be the beneficiary – Insurance Law § 3205(b)(1) would be inapplicable.
The second and third questions the inquirer raises pertain to whether the synagogue has an insurable interest in its members. The term “insurable interest,” for purposes of life insurance, is defined generally in Insurance Law § 3205(a)(1) as:
(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.
At its most basic, the insurable interest requirement is intended to ensure that an individual’s life may not be insured by someone who will benefit solely from that individual’s death, so as not to create motive for murder or harm. See Kenneth Black, Jr. & Harold D. Skipper, Jr., Life & Health Insurance 197-200 (13th ed. 2000). Stated differently, the person proposing to obtain insurance on another’s life must ordinarily expect to benefit financially from the insured’s continued survival or lose financially upon his or her death. Examples of situations generally understood to produce an insurable interest are: (1) family and marital relationships, (2) creditor-debtor relationships, and (3) business relationships based on a substantial pecuniary interest.
The general rule for purchases of insurance on the life of another is set forth in Insurance Law § 3205(b)(2). That subsection prohibits any person from procuring or causing to be procured “insurance upon the person of another unless the benefits under such insurance are payable to the named insured, to a personal representative of the insured, or to a person having an insurable interest in the named insured.” Standing alone, the plain text of Insurance Law § 3205(b)(2) prohibits the transaction referenced by the second question posed here.
However, Insurance Law § 3205(b)(3) creates an insurable interest in a charitable organization with respect to its donors.1 The purpose of this statute was described in a letter dated July 1, 1996, from the Superintendent of Insurance to the Governor’s Counsel:
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.. … Based on the above discussion, the Department recommends approval of the bill.
1995-1996 NYS Insurance Department Legislative Diary, Volume 5, Page 103.
This amendment to Insurance Law § 3205(b) enables certain charitable, educational or religious organizations to obtain life insurance policies on the lives of their donors more easily by simplifying the procurement process. The provision allows for the direct solicitation of charitable organizations by licensees of the Insurance Department, and thereby eliminates, 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.
Section 3205(b)(3) of the Insurance Law, as described above, presently reads:
Not withstanding the provisions of paragraphs one and two of the 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.
Thus, Insurance Law § 3205(b)(3) benefits all charitable, educational and religious Type-B corporations.
Hence, the answer to your second question turns on the resolution of the final question that you ask: whether the synagogue is a Type-B corporation for purposes of Insurance Law § 3205(b)(3). Not-for-Profit Corporation Law § 201(b) defines a Type-B corporation as follows:
A corporation of a type and for a purpose or purposes as follows, may be formed under this chapter, provided consents required under any other statute of this state have been obtained . . . Type-B – A not-for-profit corporation of this type may be formed for any one or more of the following non-business purposes: charitable, educational, religious, scientific, literary, cultural or for the prevention of cruelty to children or animals.
The synagogue is a religious institution incorporated under the Religious Corporation Law. Subsection 1 of Article 2-b of that law states that “the not-for-profit corporation law applies to every corporation to which this chapter [i.e., the Religious Corporation Law] applies.”2 Subsection 2 of Article 2-b of the Religious Corporation Law further states that “every corporation to which the not-for profit corporation law is made applicable by this section is a type B corporation for all purposes of that law [the Not-for-Profit Corporation Law].” Thus, by incorporation, the synagogue here is a Type-B religious corporation under the Not-for-Profit Corporation Law.
The Insurance Department’s Office of General Counsel responded to a similar query in an opinion issued May 1, 2003. See OGC Opinion No. 03-05-01. There, a private college that was granted a corporate charter in New York wished to obtain life insurance under the purview of Insurance Law § 3205(b)(3). As here, entitlement to that section’s benefits required that the college meet the definition of a Type-B charitable, educational or religious corporation formed pursuant to § 201 of the Not-for-Profit Corporation Law.
As the college was an educational rather than religious institution, the Education Law applied rather than the Religious Corporation Law, but both laws are structured similarly. After defining the college as a domestic education corporation, the opinion cited Education Law § 216-a(5), which states that “every corporation to which the not-for-profit corporation law is made applicable by this section, is a Type-B corporation under all applicable provisions of that law.” The opinion concluded that the college qualified as a Type-B corporation that could procure insurance pursuant to Insurance Law § 3205.
Because the synagogue, like the college in the earlier opinion, is a Type-B religious corporation under the Not-for-Profit Corporation Law, it likewise qualifies for the benefits afforded to such entities by Insurance Law § 3205(b)(3). The synagogue is therefore permitted by Insurance Law § 3205(b)(3) to procure or cause to be procured, directly or by assignment or otherwise, a life insurance contract on one or more of its members, even though the synagogue will be the designated beneficiary.
For further information, you may contact Associate Tax Counsel Ann H. Logan at the New York City office.
1 Insurance Law § 3205(b)(3) was enacted by N.Y. Laws of 1996, ch. 510, § 1, eff. Aug 8, 1996, and amended (to eliminate the five year “sunset” provision of the original) by N.Y. Laws of 2001, ch. 146.
2 Although the provision sets forth a series of exceptions to this general statement, none is relevant here.