New York Defines "Key Person"

Empire State regulators have adopted emergency regulations in an effort to tighten controls over sales of company-owned life insurance.

The new New York state regulations require life insurers and fraternal benefit insurers to make sure that individuals covered by “key person” life insurance policies really are key persons and not just ordinary rank-and-file employees.

Some companies buy COLI and use any death benefits to help pay for employee benefit programs.

Critics have accused some employers of insuring employees – and long-departed former employees – with COLI without getting those individuals’ permission or even telling them about the coverage.

The distinction between key persons and ordinary employees is important in New York, because a 1996 state law requires employers to get permission from employees before including them in COLI programs, officials with the New York State Insurance Department write in an explanation of the new regulations.

Companies can use COLI policies to insure key persons without getting those individuals’ permission.

Because ordinary employees have more COLI rights than key persons, tightening the definition of “key person” will “ensure that rank and file employees and other non-key employees receive the notice, consent and termination rights prescribed,” officials write.

New York officials have based their “key person” definition on a definition included in a bill that was approved by the U.S. Senate Finance Committee in 2004.

In New York, the term “key person” now can include any of the following: