Key Person and Group Life in NY
We are starting to get a significant number of questions regarding the product design implications of the recent changes to the NY Insurance law with respect to group key person life insurance.
Without going into a lot of detail on what has been a complicated problem for life insurers in this market, the new law - which was effective immediately - now permits group corporate-owned life insurance, where the insurable interest is established based on "lawful and substantial economic interest." COLI can now be written on a group basis in both the "true COLI" market where insurable interest is established by statute to permit funding of nondiscriminatory employee benefit plans as defined by ERISA, and in the "key person" market where the insureds are often highly compensated employees.
The new law requires that the employer notify the proposed insured in writing of the intent to insure, and that the policy holder will be a beneficiary on the death of the insured. The insured must consent in writing to the coverage.
The ability to write these policies on a group basis affords much more flexibility in product design. No where is that more significant than in policies offering private placement investment options. When writing on a group basis is feasible, this legislative change offers new possibilities for policies with more restricted liquidity than is permitted on individual variable life products.
Without going into a lot of detail on what has been a complicated problem for life insurers in this market, the new law - which was effective immediately - now permits group corporate-owned life insurance, where the insurable interest is established based on "lawful and substantial economic interest." COLI can now be written on a group basis in both the "true COLI" market where insurable interest is established by statute to permit funding of nondiscriminatory employee benefit plans as defined by ERISA, and in the "key person" market where the insureds are often highly compensated employees.
The new law requires that the employer notify the proposed insured in writing of the intent to insure, and that the policy holder will be a beneficiary on the death of the insured. The insured must consent in writing to the coverage.
The ability to write these policies on a group basis affords much more flexibility in product design. No where is that more significant than in policies offering private placement investment options. When writing on a group basis is feasible, this legislative change offers new possibilities for policies with more restricted liquidity than is permitted on individual variable life products.
