§ 23-81-109 - Life insurance -- Adjustment of loan interest rates provision.
23-81-109. Life insurance -- Adjustment of loan interest rates provision.
(a) Purpose. The purpose of this section is to permit and set guidelines for life insurers to include in life insurance policies issued after June 17, 1981, a provision for periodic adjustment of policy loan interest rates.
(b) Definitions. For purposes of this section, the "published monthly average" means:
(1) Moody's Corporate Bond Yield Average -- Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto; or
(2) In the event that Moody's Corporate Bond Yield Average -- Monthly Average Corporates is no longer published, a substantially similar average, established by regulation issued by the Insurance Commissioner.
(c) Maximum Rate of Interest on Policy Loans. (1) Policies issued on or after June 17, 1981, shall provide for policy loan interest rates as follows:
(A) A provision permitting a maximum interest rate of not more than eight percent (8%) per annum; or
(B) A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law and subject to any applicable usury limitation.
(2) The rate of interest charged on a policy loan made under subdivision (c)(1)(B) of this section shall not exceed the higher of the following:
(A) The published monthly average for the calendar month ending two (2) months before the date on which the rate is determined; or
(B) The rate used to compute the cash surrender values under the policy during the applicable period plus one percent (1%) per annum.
(3) If the maximum rate of interest is determined pursuant to subdivision (c)(1)(B) of this section, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.
(4) The maximum rate for each policy must be determined at regular intervals at least one (1) time every twelve (12) months, but not more frequently than one (1) time in any three-month period. At the intervals specified in the policy:
(A) The rate being charged may be increased whenever the increase as determined under subdivision (c)(2) of this section would increase that rate by one-half of one percent (1/2 of 1%) or more per annum; and
(B) The rate being charged must be reduced whenever a reduction as determined under subdivision (c)(2) of this section would decrease that rate by one-half of one percent (1/2 of 1%) or more per annum.
(5) The life insurer shall:
(A) Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan;
(B) Notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in subdivision (c)(5)(C) of this section;
(C) Send to policyholders with loans reasonable advance notice of any increase in the rate; and
(D) Include in the notices required in this subdivision (c)(5) the substance of the pertinent provisions of subdivisions (c)(1) and (3) of this section.
(6) (A) The loan value of the policy shall be at least equal to the cash surrender value at the end of the then-current policy year, provided that the insurer may deduct, either from the loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining the cash surrender value including any interest then accrued but not due, any unpaid balance of the premium for the current policy year, and interest on the loan to the end of the current policy year.
(B) No policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year, and the life insurer shall maintain coverage during that policy year until the time at which it would otherwise have terminated if there had been no change during that policy year.
(7) The substance of the pertinent provisions of subdivisions (c)(1) and (3) of this section shall be set forth in the policies to which they apply.
(d) Definitions. For purposes of this section:
(1) The rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy;
(2) The term "policy loan" includes any premium loan made under a policy to pay one (1) or more premiums that were not paid to the life insurer as they fell due;
(3) The term "policyholder" includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer; and
(4) The term "policy" includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.
(e) Other Provisions. No other provision of law shall apply to policy loan interest rates unless made specifically applicable to the rates.
(f) Applicability to Existing Policies. The provisions of this section shall not apply to any insurance contract issued before June 17, 1981.