State RegulationsNY specificDifficulty 3/5
A business partner in Rochester wants to buy life insurance on a co-partner. Under N.Y. Ins. Law §3205, the economic interest that supports insurable interest in a non-relative must be which of the following?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under N.Y. Ins. Law §3205, a person who is not a close relative must have a lawful and substantial economic interest in the continued life, health, and bodily safety of the person to be insured — an interest distinct from one arising only upon death. A business partner's stake in the co-partner's continuing contribution to the business satisfies this, which is why buy-sell and key-person coverage is written on partners' lives in New York.
Why the other options are wrong
- A) The statute expressly requires an interest distinct from an interest arising only upon death; an expectation of profiting from death alone would make the contract a wager.
- C) A partnership agreement cannot manufacture a family relationship; for non-relatives the test is a genuine economic interest in continued life under §3205.
- D) A promise to stay with the firm, even in writing, is a contract term — the insurable-interest test under §3205 is a substantial economic interest in continued life.
Memory hook
Insurable interest bets on living, not dying — §3205.