A New York life insurer includes on its application the statutory notice about loan arrangements in which the policy is used as collateral. Which warning does that notice contain?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under N.Y. Ins. Law §7812, the insurer may include the prescribed notice — or another notice acceptable to the Superintendent — warning that if the policy is used as collateral and ownership later changes in satisfaction of the loan, a person unknown to the insured may come to own an interest in the insured's life; that the change may limit the insured's ability to buy future coverage because there is a limit to how much coverage insurers issue on one life; that a higher issue age or a change in health may make future coverage harder to obtain or more expensive; and that a professional advisor should be consulted because the ownership change may carry tax consequences.
Why the other options are wrong
- B) The notice warns about unknown persons acquiring an ownership interest; it says nothing about the lender becoming the death beneficiary.
- C) The notice addresses the consequences of an ownership change in satisfaction of the loan, not cancellation for missed loan payments.
- D) The notice guarantees no settlement value; it warns about limits on future insurability and possible tax consequences.
Memory hook
Collateral loan warning: a stranger could end up owning an interest in the insured's life.