The New York Court of Appeals has ruled that New York’s insurable interest law does not bar an insured from buying a life insurance policy and immediately transferring it a third party.
The court, the state’s highest, ruled a policy owner could make such a transfer, even if he never intended to provide benefits from the policy to someone with “an insurable interest in the insured’s life.”
In the case, Kramer v. Phoenix, the U.S. Second Circuit Court of Appeals had asked the New York court to determine if the state’s insurable interest law prohibits an insured from procuring a policy on his own life with the intent to resell it a third party with no insurable interest.
The Life Insurance Settlement Association (LISA), Orlando, Fla., lauded the decision.
“Consumers won a resounding victory today,” said Doug Head, LISA’s executive director. “This decision emphatically affirms property rights and the vitality of the secondary market.”
LISA had submitted an amicus brief to the court.
Most states, including New York, have legislation requiring that a policy owner wait two years before resale.
In the Kramer case, however, the state court made a “basic distinction between policies obtained on the life of another and those obtained on one’s own life,” Head observed.