State RegulationsNY specificDifficulty 2/5
An insured applies to reinstate a lapsed New York life policy two years after the default, and the insurer demands interest on the overdue premiums. What is the maximum interest the policy may charge?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under N.Y. Ins. Law §3203(a)(10), reinstatement requires payment of all overdue premiums with interest not exceeding 6% per annum compounded annually. That statutory ceiling limits what the insurer may charge for the arrears, and interest is expressly contemplated by the provision - it is not prohibited. Because this request was made within the 3-year window, the insurer may reinstate but cannot exceed the interest cap.
Why the other options are wrong
- A) Interest is expressly contemplated by §3203(a)(10), which caps it at 6% per annum compounded annually; it is not prohibited.
- C) The statute permits interest not exceeding 6% per annum compounded annually; a simple-interest-only reading misstates the permitted method.
- D) There is a statutory ceiling - 6% per annum compounded annually - so the insurer cannot charge any rate it chooses.
Memory hook
Reinstatement interest tops out at 6%, compounded annually.