Insurable Interest and BOLI: What you Need to Know
To implement a BOLI program, a bank must first have an insurable interest in the person or potential insured individual. Insurable interest is a term of art – in its most basic form, it means that the owner of the life insurance policy has an ongoing interest in the life of another person. Courts and state law define when their is a presumptive insurable interest in a business context.
State Insurable Interest Law
In general, a bank has an insurable interest in a key person or an executive officer. OCC Bulletin 2004-56 states that “a BOLI policy must be a valid insurance contract under applicable state law and must qualify under applicable federal law. Institutions must have an insurable interest in the covered employee, as set forth in applicable state laws.” State laws vary regarding the specific instances when a bank has an insurable interest in a potential insured.
State law generally recognizes that a lender has an insurable interest in the life of a borrower to
the extent of the borrower’s obligation to the lender. In general, the maximum amount of insurance it may purchase on a borrower is equal the borrower’s obligation plus the cost of insurance and the time value of money. The OCC recognizes this interest and permits the purchase of BOLI to protect against the risk of loss from the death of a borrower.
A complete state-by-state listing of all insurable interest laws is included at the end of this article.
Insurable Interest is Determined at the Time of BOLI Implementation
The determination of whether a bank has an insurable interest in an individual only applies at the time of the application and formal issuance of a policy by an insurance carrier. For instance, a bank has an insurable interest in an executive officer during the period they are employed by the bank or when a borrower has an outstanding balance. If a BOLI policy is issued on an individual and they subsequently separate from service (in the case of a key employee) or no longer have a balance due (in the case of a borrower), the bank does not lose its insurable interest in the individual. However, even though the bank does not have to continue to show its insurable interest, other considerations apply to determine if the bank should continue to retain the policy. EBN works directly with the bank during the pre-purchase analysis of BOLI on both key employees and borrowers to determine that the bank has a valid insurable interest in a proposed insured.
What Happens if No Insurable Interest Exists
In general, life insurance carriers are the initial arbiter of whether an insurable interest exists in a BOLI policy. Insurance carriers generally have an economic incentive to do so. If it is determined that a bank does not have an insurable interest in a proposed insured then the bank might be deemed not to be the recipient of the death benefit upon the insured’s death. This determination is usually made at the time of the application or occasionally after the BOLI policy has already been issued. In the context of BOLI insurable interest law, this problem generally arises when a bank uses an out-of-state trust to own a BOLI policy on insureds that employed in another state. Use of an out-of-state trust is common practice by banks who may be located in a state where an insurance carrier is not licensed to sell a particular BOLI product or simply because the outside state has employer “friendly” insurable interest laws. OCC 2004-56 noted that “institutions that have used, or are considering using, an out-of-state trust to take advantage of more favorable insurable interest laws in another state should assess whether they could be vulnerable to a similar legal challenge.”
State-by-State Listing of Insurable Interest Laws
Below is a list of each state’s insurable interest laws. For more information, or for questions regarding how insurable interest law relates to BOLI, contact me at jake@ebn-ks.com.
| Link to Statute | Statute Title | Notes on Insurable Interest for Corporate or Business Entities |
| Alabama Insurable Interest Laws | Alabama Code Title 27. Insurance. § 27-14-3 | A corporation, foreign or domestic, has an insurable interest in the life or physical or mental ability of any of its directors, officers, or employees, or the directors, officers, or employees of any of its subsidiaries or any other person whose death or physical or mental disability might cause financial loss to the corporation; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by the shareholder at the time of his or her death or disability, on the life or physical or mental ability of that shareholder for the purpose of carrying out the contractual arrangement; or pursuant to any contract obligating the corporation as part of compensation arrangements or pursuant to a contract obligating the corporation as guarantor or surety, on the life of the principal obligor. |
| Alaska Insurable Interest Laws | Alaska Statutes Title 21. Insurance § 21.42.020. Insurable interest: life, annuity, or health | e) “Insurable interest,” with reference to life, annuity, or health insurance, includes only the following interests:
(1) in the case of persons related closely by blood or by law, a substantial interest engendered by love and affection; (2) in the case of persons other than those described in (1) of this subsection, a lawful and substantial economic interest in having the life, health, or bodily safety of the person insured continue, as distinguished from an interest that would arise only by, or would be enhanced in value by, the death, disablement, or injury of the individual insured; (3) an individual party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in the shares, has an insurable interest in the life of each individual party to the contract for the purposes of the contract only, in addition to an insurable interest that may otherwise exist as to the life of the individual. |
| Arizona Insurable Interest Laws | AZ Rev Stat § 20-1104 (1996 through 1st Reg Sess 50th Legis) | insurable interest means any actual,
lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, injury, or impairment |
| Arkansas Insurable Interest Laws | 2010 Arkansas Code Title 23 – Public Utilities and Regulated Industries Subtitle 3 – Insurance Chapter 79 – Insurance Policies Generally Subchapter 1 – General Provisions § 23-79-103 – Insurable interest — Personal insurance | Any employer, corporation, other business entity, or the trustee of a trust providing life, health, disability, retirement, or similar benefits to employees, retired employees, or their dependents or beneficiaries has an insurable interest in the lives of employees for whom the benefits are to be provided. |
| California Insurable Interest Laws | California Insurance Code Section 10110.1 | Except as provided in Section 10110.4, an employer has an insurable interest, as referred to in subdivision (a), in the life or physical or mental ability of any of its directors, officers, or employees or the directors, officers, or employees of any of its subsidiaries or any other person whose death or physical or mental disability might cause financial loss to the employer; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by the shareholder at the time of his or her death or disability, on the life or physical or mental ability of that shareholder for the purpose of carrying out the contractual arrangement; or, pursuant to any contract obligating the employer as part of compensation arrangements or pursuant to a contract obligating the employer as guarantor or surety, on the life of the principal obligor. The trustee of an employer or trustee of a pension, welfare benefit plan, or trust established by an employer providing life, health, disability, retirement, or similar benefits to employees and retired employees of the employer or its affiliates and acting in a fiduciary capacity with respect to those employees, retired employees, or their dependents or beneficiaries has an insurable interest in the lives of employees and retired employees for whom those benefits are to be provided. The employer shall obtain the written consent of the individual being insured. |
| Colorado Insurable Interest Laws | COLO. REV. STAT. ANN. § 10‐1‐102 | 10-7-704. Insurable interest.(h) A business entity has an insurable interest in the life of any of the owners, directors, officers, partners, or managers of the business entity or any affiliate or subsidiary of the business entity, or key employees or key persons of the business entity, affiliate, or subsidiary, but only if consent is obtained in writing from the key employees or key persons before the insurance is purchased. The business entity, affiliate, or subsidiary may not retaliate or take adverse action against any key employee or key person who does not consent to the issuance of insurance on the key employee or key person’s life. For purposes of this paragraph (h), “key employee” or “key person” means an individual whose position or compensation is described in section 101 (j) (2) (A) (ii) of the federal “Internal Revenue Code of 1986”, as amended.
(i) A financial institution or other person to whom a debt is owed, whether for the purposes of premium financing or otherwise, has an insurable interest in the life of the borrower or any of the owners, directors, officers, partners, or managers of the borrower; key employees, guarantors, or key persons of the borrower; or any of the foregoing of an affiliate or a guarantor of the borrower, but only if consent is obtained in writing from such persons before the insurance is purchased; except that such insurable interest is limited to the amount of the debt owed plus reasonable interest and service charges. The proceeds payable upon the death of an insured in excess of the total outstanding debt owed shall be paid to the estate of the individual insured. |
| Connecticut Insurable Interest Laws | CONN. GEN. STAT. ANN. § 38a‐1 | an employer has an insurable interest in the life and health of any of its directors, officers, partners, or employees or its directors, officers, or employees of any of its subsidiaries, or any other business associate whose death or disability might cause financial loss to the employer; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by the shareholder at the time of his death or disability, in the life of that shareholder for the purpose of carrying out the contractual arrangement; or, pursuant to any contract obligating the employer as part of compensation arrangements, in the life of the person entitled to compensation; or pursuant to a contract obligating the employer as guarantor or surety, in the life of the principal obligor. The trustee of an employer or trustee of a pension, welfare benefit plan, or trust established by an employer providing life, health, disability, retirement, or similar benefits to employees and retired employees of the employer or its affiliates and acting in a fiduciary capacity with respect to those employees, retired employees, or their dependents and beneficiaries, has an insurable interest in the lives of employees and retired employees for whom those benefits are intended. As used in this act, “employer” means a sole proprietorship, partnership, corporation or unincorporated association; |
| Delaware Insurable Interest Laws | DEL. CODE ANN. tit. 18, § 2704 | An employer providing life, health, disability, retirement or similar benefits to some or all of its employees or the employees of its affiliates, or their dependents or beneficiaries, has an insurable interest in the lives of all of its employees or the employees of its affiliates. The trustee of a trust established by an employer substantially for the benefit of the employer, or for the benefit of some or all of the employees in which such employer has an insurable interest, or the dependents or beneficiaries of such employees, has the same insurable interest in the life of such employees as does the employer; |
| Florida Insurable Interest Laws | FLA. STAT. ANN. § 627.405 | A business entity has an insurable interest in the life, body, and health of any of the owners, directors, officers, partners, and managers of the business entity or any affiliate or subsidiary of the business entity, or key employees or key persons of the business entity or affiliate or subsidiary, if consent is obtained in writing from the key employees or persons before the insurance is purchased. The business entity or affiliate or subsidiary may not retaliate or take adverse action against any key employee or person who does not consent to the issuance of insurance on the key employee or key person’s life. For purposes of this subsection, a “key employee” or “key person” means an individual whose position or compensation is described in s. 101(j)(2)(A)(ii) of the Internal Revenue Code of 1986. |
| Georgia Insurable Interest Laws | 2010 Georgia Code TITLE 33 – INSURANCE CHAPTER 24 – INSURANCE GENERALLY ARTICLE 1 – GENERAL PROVISIONS § 33-24-3 – Insurable interest — Personal insurance | (d) A corporation, foreign or domestic, has an insurable interest in the life of any individual:
(1) Holding at least 10 percent of the issued and outstanding shares of such corporation; or (2) In whom the shareholders holding a majority of the issued and outstanding shares have an insurable interest, whether arising out of their status as shareholders of the corporation or otherwise, and in the life or physical or mental ability of any of its directors, officers, or employees or the directors, officers, or employees of any of its subsidiaries or any other person whose death or physical or mental disability might cause financial loss to the corporation; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by him or her at the time of his or her death or disability, on the life or physical or mental ability of that shareholder for the purpose of carrying out such contractual arrangement; or, pursuant to any contract obligating the corporation as part of compensation arrangements or pursuant to a contract obligating the corporation as guarantor or surety, on the life of the principal obligor. The trustee of a trust established by a corporation for the sole benefit of the corporation has the same insurable interest in the life or physical or mental ability of any person as does the corporation. The trustee of a trust established by a corporation providing life, health, disability, retirement, or similar benefits to employees of the corporation or its affiliates and acting in a fiduciary capacity with respect to such employees, retired employees, or their dependents or beneficiaries has an insurable interest in the lives of employees for whom such benefits are to be provided. As used in this subsection, the term “employee” shall include any and all directors, officers, employees, or retired employees. The term “employee” shall include any former employee, but only for the purpose of replacing existing life insurance that will be surrendered in exchange for new life insurance in an amount not exceeding the insurance being surrendered. |
| Hawaii Insurable Interest Laws | HI Rev Stat § 431:10-204 (2015) | (b) No person shall procure or cause to be procured any insurance contract upon the life or body of another individual unless the benefits under the contract are payable to the individual insured or the insured’s personal representatives, or to a person having, at the time the contract was made, an insurable interest in the individual insured. |
| Idaho Insurable Interest Laws | ID Code § 41-1804 (2011 through Reg Sess) | An individual heretofore or hereafter party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in such shares, has an insurable interest in the life of each individual party to such contract and for the purposes of such contract only, in addition to any insurable interest which may otherwise exist as to the life of such individual. |
| Illinois Insurable Interest Laws | (215 ILCS 5/224.1) (from Ch. 73, par. 836.1) | an employer or an employer sponsored trust for the benefit of its employees has an insurable interest in the lives of the employer’s directors, officers, managers, nonmanagement employees, and retired employees and may insure those lives on an individual or group basis with the consent of the insured. The consent requirement will be satisfied if the insured is provided written notice of the coverage and does not reject such coverage within 30 days of receipt of such notice. The extent of the employer’s or the trust’s insurable interest for nonmanagement and retired employees shall be limited to an amount commensurate with the employer’s projected unfunded liabilities to nonmanagement and retired employees for welfare benefit plans, as defined by the Employee Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat. 829, calculated according to accepted actuarial principles. An insurable interest must exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs. An employer shall not retaliate in any manner against an employee or a retired employee for refusing consent to be insured. The proceeds of any policy or certificate issued pursuant to this Section are exempt from the claims of any creditor or dependent of the insured. As used herein, “employer” means an individual, sole proprietorship, partnership, firm, corporation, association, or any other legal entity that has one or more employees and is legally doing business in this State. |
| Indiana Insurable Interest Laws | Indiana Code Title 27. Insurance IN CODE Section 27-1-12-17.1 | Sec. 17.1. (a) As used in this section, “employee” includes a director, an officer, a partner, a manager, a nonmanagement employee, and a retired employee of the employer or the employer’s affiliates.
(b) As used in this section, “employer” means an individual, a corporation, a partnership, a limited liability company, and any other legal entity that has at least one (1) employee and is legally doing business in Indiana. The term includes an association of employers and the employer’s affiliates. (c) An employer that provides life insurance, health insurance, disability insurance, retirement benefits, or similar benefits to an employee of the employer has an insurable interest in the life of the employee. The trustee of a trust established by an employer for the benefit of the employer has the same insurable interest as the employer in the life of an employee. The trustee of a trust established by an employer that provides life insurance, health insurance, disability insurance, retirement benefits, or similar benefits to an employee of the employer and acts in a fiduciary capacity with respect to that employee or the employee’s dependents or beneficiaries has an insurable interest in the life of the employee for whom benefits are to be provided. |
| Iowa Insurable Interest Laws | Iowa Code 511.40 – EMPLOYER — INSURABLE INTEREST | 511.40 Employer — insurable interest in employees. 1. As used in this section, “employees” includes officers, managers, and directors of an employer, and the shareholders, partners, members, proprietors, or other owners of the employer. 2. An employer and a trust established by the employer for the benefit of the employer or for the benefit of the employer’s active or retired employees has an insurable interest in each of the lives of the employer’s active or retired employees and may insure their lives on an individual or group basis. 3. The amount of coverage on the lives of nonmanagement or nonkey employees shall be reasonably related to the benefit provided to the employees. |
| Kansas Insurable Interest Laws | Kansas Code 40-452. Life insurance; employer’s insurable interest in employees; when. | 40-452. Life insurance; employer’s insurable interest in employees; when. (a) An employer, or a trust which is sponsored by an employer for the benefit of its employees, shall have an insurable interest in each of the lives of the employer’s employees, directors or retired employees. Notwithstanding the provisions of K.S.A. 40-433, and amendments thereto, the employer or trust may insure such employees’, directors’ or retired employees’ lives for such employer’s or trust’s benefit on an individual or group basis with the consent of the insured.
(b) The consent requirement of subsection (a) shall be deemed to be satisfied if: (1) The employee, director or retired employee is provided with a written notice that the employer or trust intends to obtain life insurance coverage with respect to such person’s life; and (2) the employee, director or retired employee fails to provide written notification to the employer or trust, within 30 days from the date that the notice was transmitted, that such person does not consent to the employer obtaining life insurance coverage on such person’s life. It shall be unlawful for the employer or trust to retaliate against any person for refusing to consent to the issuance of life insurance on such person’s life. (c) The extent of the employer’s or trust’s insurable interest in nonmanagement and retired employees shall be limited to an amount commensurate with the aggregate projected liabilities to such employees under all employee welfare benefit plans, as defined in 29 U.S.C. § 1002(1), calculated in accordance with generally accepted actuarial principles. (d) For purposes of this section, “employer”, means any individual, sole proprietorship, partnership, limited liability company, corporation or any other entity that is legally doing business in this state; the term shall also include all entities or persons which are controlled by or affiliated with any of the foregoing. The determination of whether any entity or person is controlled by or affiliated with another shall be made by applying the principles set forth in subsections (b) or (c) of section 414 of the internal revenue code of 1986, as in effect on January l, 1993, except that all references therein to “80%” shall be changed to 51%. |
| Kentucky Insurable Interest Laws | KY Rev Stat § 304.14.040 | An employer or the employer’s trustee may procure and effect an insurance contract upon the life or body of an employee for the purpose of funding a pension or other benefit plan established for the employee of the employer. Except as provided in subsection (4) of this section, no employer, nor employer’s trustee, shall procure or cause to be procured any insurance contract on the life or body of an employee unless the benefits under the contract are payable to and utilized by an employee pension or other benefit plans. Nothing in this subsection shall be construed to require the employer or the employer’s trustee to use or designate the benefits of any employee insurance contract for the specific benefit of the estate of the particular insured on whose life or body the insurance contract producing the benefits was procured. |
| Louisiana Insurable Interest Laws | 2006 Louisiana Laws – RS 22:613(c) | (3) An individual, person, or entity heretofore or hereafter party to an agreement, contract, or option for the purchase or sale of a business or a firm or immovable property owned by a business or firm, or an interest therein or of shares of stock of a closed corporation or of an interest in such shares, has an insurable interest in the life of each individual party to such agreement, contract, or option, each individual shareholder of such closed corporation or each individual shareholder of a corporation, individual partner of a partnership, or individual member of a limited liability company owning such property, business, firm, or shares of stock for the purposes of such agreement, contract, or option, only, in addition to any insurable interest which may otherwise exist as to the life of such individual party or individual shareholder. |
| Maine Insurable Interest Laws | Title 24-A: MAINE INSURANCE CODE. Chapter 27: THE INSURANCE CONTRACT. Sec 2404. | D. A corporation has an insurable interest in the lives of its employees, former employees and retirees for the purpose of funding, in the aggregate, all or part of the corporation’s cost for preretirement and postretirement medical, death, disability and pension benefits to its employees, former employees, retirees or their beneficiaries, as long as an insurance program used to finance these employee benefits includes former employees, retirees or a broad class of employees selected by objective standards related to age, service, sex or category of employment and that the proceeds created by that insurance program are used for the sole purpose of funding the corporation’s preretirement or postretirement benefit programs covering at least a broad class of employees; |
| Maryland Insurable Interest Laws | Maryland Insurance Section 12-201 | (4) (i) This paragraph applies only to employees with respect to whom the corporate employer or an employer sponsored trust for the benefits of employees is the beneficiary under an insurance contract, if the employer is:
1. a private corporation; or 2. a public corporation, the stock of which is traded on a recognized stock exchange or traded in accordance with the National Association of Securities Dealers Automated Quotation (NASDAQ) Systems. (ii) A lawful and substantial economic interest exists in: 1. a key employee of a private corporation or a public corporation described in subparagraph (i) of this paragraph; and 2. a nonkey employee of a public corporation described in subparagraph (i) of this paragraph if: A. the employee has been employed by the public corporation for at least 12 consecutive months and consents in writing to the insurance contract; and B. the amount of insurance coverage on the nonkey employee does not exceed an amount commensurate with employer-provided benefits. |
| Massachusetts Insurable Interest Laws | Massachusetts General Laws. Chapter 175. | Section 123A. (1) A corporation, foreign or domestic shall be deemed to have an insurable interest, including without limitation, in the life or physical or mental ability of: (i) any of its directors, officers, or employees or the directors, officers, or employees of any of its subsidiaries; (ii) any other person whose death or physical or mental disability might cause financial loss to the corporation; (iii) a shareholder pursuant to any contractual arrangement with said shareholder concerning the reacquisition of shares owned by him at the time of his death or disability or (iv) the principal obligor pursuant to a contract obligating the corporation as part of compensation arrangements or pursuant to a contract obligating the corporation as guarantor or surety. The trustee of a trust established by a corporation for the sole benefit of the corporation shall have the same insurable interest in the life or physical or mental ability of any person as does the corporation. The trustee of a trust established by a corporation providing life, health, disability, retirement, or similar benefits to employees of the corporation or its subsidiaries and acting in a fiduciary capacity with respect to such employees, retired employees or their dependents or beneficiaries shall have an insurable interest in the lives of employees or retired employees for whom such benefits are to be provided. |
| Michigan Insurable Interest Laws | Michigan Act 218 Section 500.2210 | (2) Notwithstanding any other section of this act, an employer or a trust has an insurable interest in, and may, with the written consent of the insured, insure on an individual or group basis for its benefit the lives of the employer’s directors, officers, managers, nonmanagement employees, and retired employees. An employer or a trust may insure the lives of the employer’s nonmanagement employees and its retired employees only if those persons give written consent to be insured and the coverage is limited to an amount reasonably commensurate with the employer’s projected unfunded liabilities to nonmanagement and retired employees for employee benefit plans, calculated according to accepted actuarial principles. An employer shall not retaliate in any manner against an employee or a retired employee for refusing consent to be insured. |
| Minnesota Insurable Interest Laws | 2016 Minnesota Statutes 60A.0783 INSURABLE INTEREST REQUIRED | (h) A business entity has an insurable interest in the life of any of the owners, directors, officers, partners, and managers of the business entity or any affiliate or subsidiary of the business entity, or key employees or key persons of the business entity or affiliate or subsidiary, provided consent is obtained in writing from key employees or persons before the insurance is purchased. The business entity or affiliate or subsidiary may not retaliate or take adverse action against any key employee or person who does not consent to the issuance of insurance on the key employee or key person’s life. For purposes of this subdivision, a “key employee” or “key person” means an individual whose position or compensation is described in section 101(j)(2)(A)(ii) of the Internal Revenue Code of 1986, as amended through December 31, 2008. |
| Mississippi Insurable Interest Laws | MS Code § 83-5-251 | (b) The person has a lawful and substantial economic interest in having the life, health or bodily safety of the insured continue, 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;
(c) A party to a contract or option for the purchase or sale of an interest in a business proprietorship, partnership or firm, or of shares of stock of a closed corporation or of an interest in such shares, has an insurable interest in the life, body and health of each individual party to such contract and for the purposes of such contract only, in addition to any insurable interest which may exist as to such individual; |
| Missouri Insurable Interest Laws | Missouri Revised Statutes Chapter 376 Life, Health and Accident Insurance Section 376.531.1 | 2. An employer, or a trust which is sponsored by an employer for the benefit of its employees, shall have an insurable interest in each of the lives of the employer’s employees, directors or retired employees. Notwithstanding the provisions of section 376.691, the employer or trust may insure such employees’, directors’ or retired employees’ lives for such employer’s or trust’s benefit on an individual or group basis with the consent of the insured. The consent requirement shall be deemed to be satisfied if:
(1) The employee, director or retired employee is provided with a written notice that the employer or trust intends to obtain life insurance coverage with respect to such person’s life; and (2) The employee, director or retired employee fails to provide written notification to the employer or trust, within thirty days from the date that the notice was transmitted, that such person does not consent to the employer obtaining life insurance coverage on such person’s life. It shall be unlawful for the employer or trust to retaliate against any person for refusing to consent to the issuance of life insurance on such person’s life. 3. The employer’s or trust’s insurable interest in nonmanagement and retired employees shall be limited to an amount of aggregate projected death benefits commensurate with the aggregate projected liabilities to such employees under all employee welfare benefit plans, as defined in 29 U.S.C. 1002(1). Calculations of life insurance benefits and welfare benefit liabilities shall be made in accordance with generally accepted actuarial principles. Matching of life insurance benefits and welfare benefit liabilities may be done on a cash flow, present value or other appropriate basis. 4. For purposes of this section, the term “employer” means any individual, sole proprietorship, partnership, limited liability company, corporation or any other entity that is legally doing business in this state. The term shall also include all entities or persons which are controlled by or affiliated with any of the foregoing entities. The determination of whether any entity or person is controlled by or affiliated with another shall be made by applying the principles set forth in subsection (b) or (c) of section 414 of the Internal Revenue Code of 1986, as in effect on January 1, 1993, except that all references therein to eighty percent shall be changed to fifty-one percent. |
| Montana Insurable Interest Laws | MONT. CODE ANN. § 33-15-201 | (3) “Insurable interest” with reference to personal insurance includes only interests as follows:
(a) in the case of individuals related closely 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 having the life, health, or bodily safety of the individual insured continue, as distinguished from an interest that would arise only by or would be enhanced in value by the death, disablement, or injury of the individual insured. (4) An individual who is a party to a contract or option for the purchase or sale of an interest in a business partnership or firm or of shares of stock of a closed corporation or of an interest in the shares has an insurable interest in the life of each individual party to the contract and for the purposes of the contract only in addition to any insurable interest that may otherwise exist as to the life of the individual. |
| Nebraska Insurable Interest Laws | Nebraska Revised Statute 44-373 | Corporate directors, officers, and employees; insurance upon lives; requirements.
Whenever a corporation, organized under the laws of this state, has heretofore caused or shall hereafter cause the life of any director, officer, agent or employee to be insured, or whenever such corporation is named as a beneficiary in, or assignee of, any policy of life insurance, due authority to assign, release, relinquish, convert, surrender, change the beneficiary, or to take any other or different action with reference to such insurance, shall be sufficiently evidenced to the insurance company by a written statement that the same has been approved by a majority of the board of directors, which statement shall be signed by the president and the secretary, or other corresponding officer, of such corporation, under its corporate seal. Such statement shall be binding upon such corporation, and shall protect the insurance company concerned in any act done or suffered by it upon the faith thereof without further inquiry into the validity of the corporate authority or the regularity of the corporate proceedings. No person shall be disqualified, by reason of interest in the subject matter, from acting as a director or as a member of the executive committee of such corporation on any corporate act touching such insurance. |
| Nevada Insurable Interest Laws | NEV. REV. STAT. § 687B.040 | 4. As used in this section, insurable interest as to such personal insurance means that every person has an insurable interest in the life, body and health of himself or herself, and of other persons as follows:
(a) In the case of persons related closely by blood or by law, a substantial interest engendered by love and affection; and (b) In the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the person insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the person insured. |
| New Hampshire Insurable Interest Laws | ||
| New Jersey Insurable Interest Laws | N.J. STAT. ANN. § 17B:24-1.1 | (4) A corporation has an insurable interest: (a) in the life or physical or mental ability of any of its directors, officers, or employees, or the directors, officers, or employees of any of its subsidiaries or any other person whose death or physical or mental disability might cause financial loss to the corporation; (b) pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by him at the time of his death or disability, in the life or physical or mental ability of that shareholder for the purpose of carrying out that contractual arrangement; (c) pursuant to any contract obligating the corporation as part of compensation arrangements, in the life of the individual for whom compensation is to be provided; or (d) pursuant to a contract obligating the corporation as guarantor or surety, in the life of the principal obligor. The trustee of a trust established and fully funded by a corporation providing solely life, health, disability, retirement, or similar benefits to employees of the corporation or its affiliates and acting in a fiduciary capacity with respect to those employees, retired employees, or their dependents or beneficiaries, has an insurable interest in the lives of employees for whom such benefits are to be provided. |
| New Mexico Insurable Interest Laws | N.M. STAT. ANN. § 59A-18-4 | (2) in the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the insured individual continue, as distinguished from an interest which would arise only, or would be enhanced in value, by the death, disablement or injury of the individual insured.
D. An individual party to a contract or option for purchase or sale of an interest in a business partnership or firm, or of shares of stock of a corporation or of an interest in such shares, has an insurable interest in the life, body and health of each individual party to such contract and for the purposes of such contract only, in addition to any insurable interest which may otherwise exist as to such individual. |
| New York Insurable Interest Laws | N.Y. INS. LAW § 3205 | (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. |
| North Carolina Insurable Interest Laws | N.C. GEN. STAT. §§ 58-58-75 | § 58-58-75. Insurable interest in life and physical ability of employee or agent. (a) An employer, whether a partnership, joint venture, business trust, mutual association, corporation, any other form of business organization, or one or more individuals, or any religious, educational, or charitable corporation, institution or body, has an insurable interest in and the right to insure the physical ability or the life, or both the physical ability and the life, of an employee for the benefit of such employer. Any principal shall have a life insurable interest in and the right to insure the physical ability or the life, or both the physical ability and the life, of an agent for the benefit of such principal. (b) An employee described in subsection (a) of this section shall be insured for the benefit of an employer described in subsection (a) of this section only if the employee receives written notification from the insurer of the existence of the coverage or that coverage will be purchased. The notice shall be provided to the employee in connection with the application for coverage or within 30 days after the effective date of the coverage and shall include a statement that the employer may maintain the life insurance coverage on the employee even after employment is terminated. (c) For nonkey or nonmanagerial employees, the aggregate amount of coverage shall be reasonably related to the benefits provided to the employees in the aggregate. (d) With respect to employer-provided pension and welfare plans, the life insurance coverage purchased to finance the plans may only cover the lives of those employees and retirees who, at the time their lives were first insured under the plan, either are participants, or would be eligible to participate, upon the satisfaction of age, service, or similar eligibility criteria in the plan. (1951, c. 283, s. 1; 1957, c. 1086; 2005-234, s. 2.) |
| North Dakota Insurable Interest Laws | N.D. CENT. CODE § 26.1-29-09.1 | e. In the case of a corporation or the trustee of a trust providing life, health, disability, retirement, or similar benefits to employees of one or more corporations, and acting in a fiduciary capacity with respect to the employees, retired employees, or their dependents or beneficiaries, a corporation or the trustee of a trust has an insurable interest in the lives of employees for whom the benefits are to be provided and the corporation or trustee of a trust may purchase, accept, or otherwise acquire an interest in personal insurance as a beneficiary or owner. Written consent of the insured individual is required if the personal insurance purchased names the corporation or the trustee of a trust as a beneficiary. |
| Ohio Insurable Interest Laws | OHIO REV. CODE ANN. § 3911.091 | (A) As used in this section, “employer” means any individual, sole proprietorship, partnership, limited liability company, corporation, or any other entity that is doing business in this state. “Employer” also includes all entities or persons that are controlled by or affiliated with any such individual, sole proprietorship, partnership, limited liability company, corporation, or other entity. Whether an entity or person is controlled by or affiliated with another shall be determined by applying the principles set forth, on January 1, 1993, in subsections 414(b) and (c) of the “Internal Revenue Code of 1986,” 100 Stat. 2085, 26 U.S.C.A. 414, except that a voting power of fifty-one per cent shall be applied to the determination of control or affiliation for purposes of this section.
(B) An employer, or a trust that is sponsored by an employer for the benefit of its employees, has an insurable interest in each of the lives of its employees, directors, and retired employees. Notwithstanding sections 3911.09 and 3917.01 of the Revised Code, an employer or trust may insure for its own benefit the lives of its employees, directors, or retired employees, on an individual or group basis, with the prior written consent of the prospective insured. At the time the employer or trust seeks the consent of the prospective insured, the employer or trust shall disclose in writing to the prospective insured that the employer or trust may maintain the proposed life insurance in force after the insured’s employment terminates or the insured’s retirement benefits expire. (C) An employer’s or trust’s insurable interest in the lives of its nonmanagement and retired employees is limited to an amount of aggregate projected death benefits commensurate with the aggregate projected gross liabilities for such employees under all employee benefit plans, as defined in section 1002 of the “Employee Retirement Income Security Act of 1974,” 88 Stat. 829, 29 U.S.C.A. 1002, as amended. Calculations of life insurance benefits and employee benefit liabilities under this division shall be made in accordance with generally accepted actuarial principles. Matching of such life insurance benefits and employee benefit liabilities may be carried out on a cash flow, present value, or other appropriate basis. (D) No employer or trust may retaliate or take any other adverse action against any employee, director, or retired employee because the employee, director, or retired employee has refused to consent to the insuring of the employee’s, director’s, or retired employee’s life under this section. (E) The effective date of a policy of life insurance, rather than the date of an insured’s death or the filing of a claim, shall be used when determining the existence or extent of an insurable interest under this section. (F) This section does not limit or affect any other insurable interest that may exist at common law or that has been established by statute. |
| Oklahoma Insurable Interest Laws | OKLA. STAT. tit. 36, § 3604 | 5.a.An employer, or a trust which is sponsored by an employer for the benefit of its employees, shall have an insurable interest in each of the lives of the employees, directors, or retired employees of the employer. Notwithstanding paragraph 2 of subsection C of this section or Section 4101 of this title, and amendments thereto, the employer or trust may insure the life of any employee, director, or retired employee for the benefit of the employer or trust on an individual or group basis only with the written consent of the insured.
b.The consent requirement of Section 3607 of this title shall be accomplished as follows: (1)the employer shall notify the employee, director, or retired employee by a written notice that the employer or trust would like to obtain life insurance coverage with respect to the person’s life, and (2)if the employee, director, or retired employee fails to provide written consent to the employer or trust, the employer or trust shall not purchase or obtain such insurance. c.It shall be unlawful for the employer or trust to retaliate against any person for refusing to consent to the issuance of insurance on the person. d.The insurable interest of the employer or trust in nonmanagement and retired employees shall be limited to an amount agreed to by the employee or, in the absence of an agreement, an amount of aggregate projected death benefits commensurate with the aggregate projected liabilities to the employee under all employee welfare benefit plans, as defined in Section 1002(1) of Title 29 of the United States Code. Calculations of life insurance benefits and welfare benefit liabilities shall be made in accordance with generally accepted actuarial principles. Matching of life insurance benefits and welfare benefit liabilities may be done on cash flow, present value, or other appropriate basis. e.For purposes of this section: (1)”employer” means any individual, sole proprietorship, partnership, limited liability company, corporation, or other legal entity that is legally doing business in this state; the term shall also include all entities or persons which are controlled by or affiliated with any of the foregoing. The determination of whether any entity or person is controlled by or affiliated with another shall be made by applying the principles set forth in subsection (b) or (c) of Section 414 of Title 26 of the United States Code, as in effect on January 1, 1993, except that all references therein to eighty percent (80%) shall be changed to fifty-one percent (51%), and (2)“employee” means any common law employee of an employer. |
| Oregon Insurable Interest Laws | Oregon Statutes § 743.040 Personal insurance, insurable interest and beneficiaries | (1) Any individual of competent legal capacity may procure or effect an insurance policy on the individuals own life or body for the benefit of any person. However, except as provided in ORS 743.044 (Life insurance for benefit of charity), no person shall procure or cause to be procured any insurance policy upon the life or body of another unless the benefits under such policy are payable to the individual insured or the personal representatives of the individual, or to a person having, at the time such policy was entered into, an insurable interest in the individual insured. |
| Pennsylvania Insurable Interest Laws | 40 PA. CONS. STAT. § ]37-121 | Section 412. Application for Insurance; Insurable Interest.–No policy of life insurance shall be delivered in this Commonwealth except upon the application of the person insured. A person liable for the support of a child may take out a policy of insurance on such child; and persons, copartnerships, associations, [and] corporations, and the trustee of a trust established by a person, copartnership, association or corporation providing benefits to its officers, directors, principals, partners or employes may insure the lives and health of officers, directors, principals, partners, and employes, without the signing of a personal application as hereinbefore required: Provided, That such persons, copartnerships, associations, corporations and the trustee of a trust established by a person, copartnership, association or corporation shall notify such officers, directors, principals, partners and employes in writing of the intent to purchase a policy of life insurance insuring the lives of such officers, directors, principals, partners or employes and obtain the prior written consent of such officers, directors, principals, partners or employes. |
| Rhode Island Insurable Interest Laws | R.I. GEN. LAWS § 27-4-27(3) | (3) In the case of employees of public and private corporations, with respect to whom the corporate employer or an employer-sponsored trust is the beneficiary under the insurance contract, a lawful and substantial economic interest exists in:
(i) Key employees; and (ii) Employees other than those identified in subdivision (c)(3)(i), and former employees and retirees for the purpose of funding, in the aggregate, all or part of the corporation’s cost for pre-retirement and post-retirement benefits; provided, (A) that the amount of insurance coverage on these employees will be limited to an amount commensurate with employer-provided benefits to those employees, (B) that an insurance program used to finance these employee benefits includes former employees, retirees, or a broad class of employees selected by objective standards related to age, service, sex, or category of employment, and (C) that the proceeds created by that insurance program used for the sole purpose of funding the corporation’s pre-retirement or post-retirement benefit programs; |
| South Carolina Insurable Interest Laws | South Carolina Code of Laws Unannotated Title 38 – Insurance CHAPTER 63 Individual Life Insurance ARTICLE 1 General Provisions | |
| South Dakota Insurable Interest Laws | S.D. CODIFIED LAWS §§ 58-10-4 to 58-10-6 | 58-10-4. Insurable interest in personal insurance defined. Insurable interest with reference to personal insurance includes only interests as follows:
(1) Interests in individuals related closely by blood, marriage, or by law, a substantial interest engendered by love and affection; (2) For other persons, a lawful and substantial economic interest in having the life, health, or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement, or injury of the individual insured; (3) A person who is a party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in the shares, has an insurable interest in the life of each individual party to the contract and for the purpose of the contract only, in addition to any insurable interest which may otherwise exist as to the life of the individual; (4) A charitable organization that meets the requirements of section 501(c)3 of the Internal Revenue Code of 1986, as amended to January 1, 1992, and owns or purchases life insurance on an insured who consents to the ownership or purchase of the insurance has an insurable interest in the life of the insured; (5) A financial institution, as defined in subdivision 10-43-1(4), to whom a debt is owed has an insurable interest in the life of the insured to the extent of the debt owed by the insured, irrespective of any statute of limitation regarding the enforceability of the debt; (6) The trustee of a trust established by an individual settlor has an insurable interest in the life of that individual settlor, and has the same insurable interest in the life of any other individual as does such individual settlor. However, the settlor must be the insured or have an insurable interest as required by subdivisions (1) to (5), inclusive, of this section. The trustee of a trust has the same insurable interest in the life of any other individual as does any beneficiary of the trust with respect to proceeds of insurance on the life of such individual or any portion of such proceeds that are allocable to such beneficiary’s interest in such trust. If multiple beneficiaries of a trust have an insurable interest in the life of the same individual, the trustee of such trust has the same aggregate insurable interest in such individual’s life as such beneficiaries with respect to proceeds of insurance on the life of such individual or any portion of such proceeds that are allocable in the aggregate to such beneficiaries’ interest in the trust. A trustee of a business trust has the same insurable interest in the life of any individual as does any beneficial owner in any individual or any beneficial owners in the aggregate in any individual. |
| Tennessee Insurable Interest Laws | 2010 Tennessee Code Title 56 – Insurance Chapter 7 – Policies and Policyholders Part 3 – Life Insurance Policies 56-7-314 – Purchase or assignment of life insurance by charitable organization Date of insurable interest. | Nothing specific in the statutes. All at common law. |
| Texas Insurable Interest Laws | TEX. INS. CODE ANN. § 1103.053 | Sec. 1103.003. CORPORATION, JOINT STOCK ASSOCIATION, OR TRUST ESTATE AS BENEFICIARY. A corporation, a joint stock association, or a trust estate that is engaging in business for profit may be designated as a beneficiary in a policy that insures the life of an officer or stockholder of the corporation, joint stock association, or trust estate. |
| Utah Insurable Interest Laws | UTAH CODE ANN. § 31A-21-104 | (d)
(i) Subject to Subsection (3)(d)(v), an employer or an employer sponsored trust: (A) has an insurable interest in the lives of the employer’s: (I) directors; (II) officers; (III) managers; (IV) nonmanagement employees; and (V) retired employees; and (B) may insure a life listed in Subsection (3)(d)(i)(A): (I) on an individual or group basis; and (II) with the written consent of the insured. |
| Vermont Insurable Interest Laws | Vermont Statutes Title 8: Banking and Insurance Chapter 103: Life Insurance Policies And Annuity Contracts | Nothing specific in the statutes. All at common law. |
| Virginia Insurable Interest Laws | VA. CODE ANN. § 38.2-301 to 38.2-302 | 3. In the case of employees of corporations, with respect to whom thecorporate employer, a trust established by the corporate employer, or anemployee benefit trust is the beneficiary under an insurance contract, thelawful and substantial economic interest required in subdivision 2 of thissubsection shall be deemed to exist in (i) key employees and (ii) otheremployees who have been employed by the corporation for 12 consecutivemonths, provided that the amount of insurance coverage on such otheremployees shall be limited to an amount which is commensurate withemployer-provided benefits to non-key employees as a group; |
| Washington Insurable Interest Laws | WASH. REV. CODE ANN. §§ 48.18.030 to 48.16.060 | Employer-owned life insurance—Requirements.
(1) “Employer-owned life insurance policy” as used in this section and RCW 48.18.583 means an insurance policy purchased by an employer on the life of an employee, for the benefit of a person other than the employee or the employee’s personal representative. (2) An employer-owned life insurance policy may not be made or take effect unless at the time the contract is made the individual insured consents to the contract in writing. (3) An employer may not retaliate in any manner against an employee for providing written notice that he or she does not want to be insured under an employer-owned life insurance policy. (4) No later than thirty days after the date on which an employer purchases an employer-owned life insurance policy on the life of an employee, the employer must provide to the employee a written notice that contains the following information: (a) A statement that the employer carries an employer-owned life insurance policy on the life of the employee; (b) The identity of the insurance carrier of the policy; (c) The maximum face amount of the policy at issue; and (d) The identity of the beneficiary of the policy. |
| West Virginia Insurable Interest Laws | W. VA. CODE § 33-6-2(2) | (c) “Insurable interest” with reference to personal insurance includes only interests as follows:
(1) In the case of individuals related closely by blood or by law, a substantial interest engendered by love and affection. (2) In the case of other persons, a lawful and substantial economic interest in having the life, health, or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the individual insured. (3) An individual heretofore or hereafter party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in such shares, has an insurable interest in the life of each individual party to such contract and for the purposes of such contract only, in addition to any insurable interest which may otherwise exist as to the life of such individual. (4) A charitable institution as defined under Sections 501(c)(3), 501(c)(6), 501(c)(8) and 501(c)(9) of the Internal Revenue Code of 1986, as amended. |
| Wisconsin Insurable Interest Laws | WIS. STAT. § 631.07 | 631.07 Insurable interest and consent.
(1) Insurable interest. No insurer may knowingly issue a policy to a person without an insurable interest in the subject of the insurance. (2) Consent in life and disability insurance. Except under sub. (3), no insurer may knowingly issue an individual life or disability insurance policy to a person other than the one whose life or health is at risk unless the latter has given written consent to the issuance of the policy. Consent may be expressed by knowingly signing the application for the insurance with knowledge of the nature of the document, or in any other reasonable way. |
| Wyoming Insurable Interest Laws | WYO. STAT. ANN. § 26-15-102; § 26- 15-106 | (c) “Insurable interest” as to personal insurance means that any individual has an insurable interest in the life, body and health of himself, and of other persons as follows:
(i) In the case of individuals related closely by blood or by law, a substantial interest engendered by love and affection; (ii) In the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the individual insured continue, as distinguished from an interest arising only by, or enhanced in value by, the death, disablement or injury of the individual insured; and (iii) An individual party to a contract or option for the purchase or sale of an interest in a business partnership or firm, or of shares of stock of a closed corporation or of an interest in those shares, has an insurable interest in the life of each individual party to the contract and for the purposes of the contract only, in addition to any insurable interest which otherwise exists as to that individual’s life. |