56-7-2309 - Loan provisions in life insurance policies.
56-7-2309. Loan provisions in life insurance policies.
(a) In the case of those policies issued prior to the operative date of § 56-7-401, the Standard Nonforfeiture Law, the loan value referred to in § 56-7-2307(7) shall be the reserve at the end of the current policy year on the policy and on any dividend additions to the policy, less a sum not more than two and one half percent (2.5%) of the amount insured by the policy and of any dividend additions to the policy. The policy shall specify the mortality table and rate of interest adopted for computing the reserve and may provide that the loan may be deferred for not exceeding six (6) months after the application for the loan is made.
(b) (1) In the case of policies issued on or after the operative date of § 56-7-401, the Standard Nonforfeiture Law, the loan value referred to in §§ 56-7-702(b)(15) and 56-7-2307(7) shall be:
(A) If there is no existing indebtedness to the company on the policy, the cash surrender value at the end of the current policy year; and
(B) If there is existing indebtedness to the company on the policy, that amount that the cash surrender value at the end of the current policy year would be if no indebtedness existed, the cash surrender value in either case being that required by § 56-7-401.
(2) The company shall reserve the right to defer the loan, except when made to pay the premium, for six (6) months after application for the loan is made.
(c) As used in this subsection (c) and subsections (d) and (e), 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 publication; 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 commissioner.
(d) (1) (A) Policies issued on or after July 1, 1982, shall provide for policy loan interest rates as follows:
(i) A provision permitting a specified rate of interest in accordance with § 56-7-2307(7); or
(ii) A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.
(B) No life insurer shall be permitted to issue policies containing variable rates of interest on policy loans pursuant to subdivision (d)(1)(A)(ii) unless the insurer also makes available policies, which may or may not be on the same plan of insurance, with fixed rates of interest on policy loans pursuant to subdivision (d)(1)(A)(i).
(2) The rate of interest charged on a policy loan made under subdivision (d)(1)(A)(ii) 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%) a year.
(3) If the maximum rate of interest is determined pursuant to subdivision (d)(1)(A)(ii), 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 but not more frequently than once every twelve (12) months. At the intervals specified in the policy:
(A) The rate being charged may be increased whenever the increase as determined under subsection (d) would increase that rate by one half percent (0.5%) or more a year; and
(B) The rate being charged shall be reduced whenever the reduction as determined under subsection (d) would decrease that rate by one half percent (0.5%) or more a year.
(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 (d)(5)(C);
(C) Send to policyholders with loans reasonable advance notice of any increase in the rate; and
(D) Include in the notices required in subdivision (d)(5)(C) the substance of the pertinent provisions of subdivisions (d)(1) and (3).
(6) The loan value of the policy shall be determined in accordance with subsections (a) and (b), but 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 (d)(1) and (3) shall be set forth in the policies to which they apply.
(8) For the purposes of this subsection (d):
(A) The rate of interest on policy loans permitted under this subsection (d) includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy;
(B) Policy includes certificates issued by a fraternal benefit society and annuity contracts that provide for policy loans;
(C) Policyholder includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer; and
(D) 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.
(9) The maximum effective rate of interest permitted for a policy loan shall not exceed the absolute ceiling set for the applicable formula rate in § 47-14-103(2) or any successor statute.
(10) No other law shall apply to policy loan interest rates unless made specifically applicable to the rates.
(e) Subsections (c) and (d) and this subsection (e) shall not apply to any insurance contract issued before July 1, 1982, unless the policyholder agrees in writing to the applicability of subsections (c) and (d) and this subsection (e); provided, that any offer made by an insurer to an insured to endorse the applicability of subsections (c) and (d) and this subsection (e) to any insurance contract issued before July 1, 1982, shall be filed with the commissioner prior to the making of the offer and shall be subject to the commissioner's approval.
[Acts 1945, ch. 56, § 7; C. Supp. 1950, § 6210.2; Acts 1979, ch. 398, § 7; T.C.A. (orig. ed.), § 56-1114; Acts 1982, ch. 727, §§ 2-4; 1992, ch. 984, § 1; T.C.A., § 56-7-303.]