§ 27-4-13.1 - Policy loan interest rates.
SECTION 27-4-13.1
§ 27-4-13.1 Policy loan interest rates.– (a) "Published monthly average" means:
(1) Moody's corporate bond yield average – monthlyaverage corporates, as published by Moody's Investors Service, Inc. or anysuccessor; or
(2) In the event that the Moody's corporate bond yieldaverage – monthly average corporates is no longer published, asubstantially similar average, established by regulation issued by thecommissioner.
(b) Policies issued on or after May 25, 1982, shall providefor policy loan interest rates as follows:
(i) A provision permitting a maximum interest rate of notmore than eight percent (8%) per annum; or
(ii) A provision permitting an adjustable maximum interestrate established from time to time by the life insurer as permitted by law.
(2) The rate of interest charged on a policy loan made underparagraph (1)(ii) of this subsection shall not exceed the higher of thefollowing:
(i) The published monthly average for the calendar monthending two (2) months before the date on which the rate is determined; or
(ii) The rate used to compute the cash surrender values underthe policy during the applicable period plus one percent (1%) per annum.
(3) If the maximum rate of interest is determined pursuant toparagraph (1)(ii) of this subsection, the policy shall contain a provisionsetting forth the frequency at which the rate is to be determined for thatpolicy.
(4) The maximum rate for each policy must be determined atregular intervals at least once every twelve (12) months, but not morefrequently than once in any three (3) month period. At the intervals specifiedin the policy:
(i) The rate being charged may be increased when an increaseas determined under subdivision (2) of this subsection would increase that rateby one half of one percent (.5%) or more per annum;
(ii) The rate being charged must be reduced when a reductionas determined under subdivision (2) of this subsection would decrease that rateby one half of one percent (.5%) or more per annum.
(5) The life insurer shall:
(i) Notify the policyholder at the time a cash loan is madeof the initial rate of interest on the loan;
(ii) Notify the policyholder with respect to premium loans ofthe initial rate of interest on the loan as soon as it is reasonably practicalto do so after making the initial loan. Notice does not need to be given to thepolicyholder when a further premium loan is added, except as provided inparagraph (iii) of this subdivision;
(iii) Send to policyholders with loans reasonable advancenotice of any increase in the rate; and
(iv) Include in the notices required in this subdivision thesubstance of the pertinent provisions of subdivisions (1) and (3) of thissubsection.
(6) No policy shall terminate in a policy year as the soleresult of a change in the interest rate during that policy year, and the lifeinsurer shall maintain coverage during that policy year until the time at whichit would have terminated if there had been no change during that policy year.
(7) The substance of the pertinent provisions of subdivisions(1) and (3) of this subsection shall be set forth in the policies to which theyapply.
(8) For purposes of this section:
(i) The rate of interest on policy loans permitted under thissection includes the interest rate charged on the reinstatement of policy loansfor the period during and after any lapse of a policy;
(ii) "Policy loan" includes any premium loan made under apolicy to pay one or more premiums that were not paid to the life insurer asthey became due;
(iii) "Policyholder" includes the owner of the policy or theperson designated to pay premiums as shown on the records of the life insurer;and
(iv) "Policy" includes certificates issued by a fraternalbenefit society and annuity contracts that provide for policy loans.
(9) No other provision of law shall apply to policy loaninterest rates unless made specifically applicable to those rates.
(c) The provisions of this section shall not apply to anyinsurance contract issued before May 25, 1982, unless the policyholder agreesin writing to the applicability of this section.