New York limits on life insurance on minors (Ins. Law 3207)
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Why New York limits insurance on children
A death benefit on a young child replaces no income, so large policies on children have long been viewed with suspicion. New York Insurance Law § 3207 does two things. It says when a minor is old enough to buy and control a life policy, and it caps how much insurance can be placed on a young child's life.
The key age: 14 years and 6 months
Every rule in § 3207 turns on one age: fourteen years and six months.
A minor above that age is treated as competent to:
- enter into a life insurance contract,
- own the policy, and
- exercise every right under it,
on their own life or on the life of anyone in whom the minor has an insurable interest.
There is one string attached. The beneficiary may be only the minor, or the minor's parent, spouse, brother, sister, child or grandparent. A 15-year-old cannot name a friend, an aunt or a cousin.
Children under 14½: who may buy, and how much
An insurer may issue a policy on a child under 14 years and 6 months if it is effectuated (applied for and put in force) by someone with an insurable interest in the child, or by someone the child depends on for support and maintenance.
The insurer must not knowingly issue an amount that, added to all insurance already in force on the child, exceeds the greater of:
- $50,000, or
- 50% of the life insurance in force on the person effectuating the policy, on the date the child's policy is issued. If the child is under 4 years and 6 months, the percentage is 25%.
Some worked examples:
- A parent carries $200,000 and insures an 8-year-old. Half of $200,000 is $100,000, which beats $50,000, so the cap is $100,000.
- The same parent insures a 3-year-old. A quarter of $200,000 is $50,000, which ties the flat figure, so the cap is $50,000.
- A parent with only $60,000 of coverage insures a 10-year-old. Half is $30,000, so the $50,000 floor applies.
The cap is measured at issue. If the parent later drops some of their own coverage, the child's policy does not become excess.
The non-dependent exception
The cap does not apply when the person who effectuates the policy and pays the premiums has an insurable interest in the child, and the child is not dependent on that person for support. A grandparent who does not support the child is the classic example.
What happens to an excess amount
If a policy goes over the cap, the excess is not valid and not payable as a death claim for as long as it stays excess. It stops being excess once the child reaches 14 years and 6 months.
On demand, or at the child's death, with satisfactory proof that an excess exists, the insurer must refund the premiums paid less dividends, with interest at the rate assumed in valuing the policy, minus any policy loan. The excess coverage then ends. Where there are several policies, which one holds the excess is decided by date of issue. If only part of a policy is excess, the refund and the remaining benefit are reduced in proportion. An insurer that paid a death claim without proof that it was excess owes no refund.
What counts toward the cap
Accidental death benefits, return-of-premium and return-of-cash-value benefits, variable death benefits above the guaranteed minimum, and additions bought with dividends are excluded from the amount counted.
Exam tip: the answer is almost always "the greater of $50,000 or 50% (25% under age 4½) of the insurance on the person who applies."
Key terms
Sample questions
Under New York Insurance Law, at what age is a minor deemed competent to contract for and own a policy of life insurance on their own life?