CHAPTER 1110. INTEREST RATES ON CERTAIN POLICY LOANS
INSURANCE CODE
TITLE 7. LIFE INSURANCE AND ANNUITIES
SUBTITLE A. LIFE INSURANCE IN GENERAL
CHAPTER 1110. INTEREST RATES ON CERTAIN POLICY LOANS
Sec. 1110.001. DEFINITIONS. In this chapter:
(1) "Life insurance policy" includes:
(A) a benefit certificate issued by a fraternal benefit society;
or
(B) an annuity contract that provides for a policy loan.
(2) "Policy loan" includes any premium loan made under a life
insurance policy to pay one or more premiums not paid to the life
insurer when due.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.002. APPLICABILITY OF CHAPTER. This chapter applies
only to a life insurance policy issued on or after August 31,
1981.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.003. APPLICABILITY OF OTHER LAW. A law not included
in this chapter applies to interest rates on policy loans only if
that law is made specifically applicable to those rates.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.004. MAXIMUM INTEREST RATE ON POLICY LOANS. (a) In
this section, "published monthly average" means:
(1) Moody's Corporate Bond Yield Average--Monthly Average
Corporates as published by Moody's Investors Service, Inc., or a
successor to that corporation; or
(2) if the rate described by Subdivision (1) is no longer
published, a substantially similar average established by rule of
the commissioner.
(b) A life insurance policy must include a provision for an
interest rate on a policy loan that:
(1) does not exceed 10 percent a year; or
(2) is an adjustable maximum interest rate established from time
to time by the life insurer as permitted by law and does not
exceed the lesser of:
(A) 15 percent a year; or
(B) the greater of:
(i) the published monthly average for the calendar month that
ended two months before the date on which the rate is determined;
or
(ii) the rate used to compute the cash surrender values under
the life insurance policy during the applicable period plus one
percent per year.
(c) This section also applies to the interest rate charged, on
reinstatement of a policy loan, for the period during and after a
lapse of the life insurance policy.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.005. FREQUENCY OF ADJUSTABLE INTEREST RATE
DETERMINATION. A life insurer shall determine the adjustable
interest rate under Section 1110.004(b)(2) at regular intervals
at least once every 12 months but not more frequently than once
in any three-month period. At the intervals specified in the life
insurance policy, the insurer:
(1) may increase the rate charged when the interest rate
determined under Section 1110.004(b)(2) would result in a rate
increase of at least one-half of one percent per year; and
(2) shall reduce the rate charged when the interest rate
determined under Section 1110.004(b)(2) would result in a rate
decrease of at least one-half of one percent per year.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.006. INFORMATION TO BE INCLUDED IN POLICY. (a) A
life insurance policy must include the substance of the
provisions of Section 1110.004(b) that are applicable to the
policy.
(b) A life insurance policy that provides for an adjustable
interest rate under Section 1110.004(b)(2) must state the
frequency at which the rate is to be determined.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.007. NOTICE TO POLICYHOLDER. (a) In this section,
"policyholder" includes the owner of a life insurance policy or
the person designated to pay premiums as shown on the records of
the life insurer.
(b) For a cash loan on a life insurance policy, the life insurer
shall notify the policyholder of the initial interest rate on the
loan at the time the insurer makes the loan.
(c) For a premium loan on a life insurance policy, the life
insurer shall notify the policyholder of the initial interest
rate on the loan as soon as reasonably practical after making the
loan. Except as provided by Subsection (d), subsequent notice is
not required to be given when the insurer makes an additional
premium loan on the policy.
(d) At least 30 days before an increase in the interest rate on
a policy loan, the life insurer shall send a notice of the rate
increase to the policyholder.
(e) The life insurer shall include in a notice required by this
section the substance of the provisions of Section 1110.004(b)
applicable to the policy. For a policy loan with an adjustable
interest rate, the notice must state the frequency at which the
rate is to be determined.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.
Sec. 1110.008. LOAN VALUE OF POLICY; TERMINATION OF POLICY BASED
ON CHANGE IN INTEREST RATE. (a) The loan value of a life
insurance policy shall be determined in accordance with Section
1101.009.
(b) A life insurance policy may not be terminated in a policy
year solely as the result of a change in the policy loan interest
rate during that policy year, and the life insurer shall maintain
coverage during that policy year until the time at which coverage
would otherwise have terminated if there had been no change in
the interest rate.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,
2003.