§ 33-25-3-1 — Policy loan interest rates on life insurance policies; definitions; construction and applicability

(a) As used in this Code section, the term: (1) "Policy" means a contract of life insurance, a life benefit certificate issued by a fraternal benefit society, or an annuity contract. (2) "Policyholder" means the owner of the policy or the person designated on the records of the company as the person responsible to pay the premiums. (3) "Policy loan" means a cash loan or a premium loan made by an insurer on a policy in accordance with the provisions of this title. (4) "Policy loan interest rate" means the interest rate charged on a policy loan made in accordance with the provisions of this title including the interest rate charged on reinstatement of a policy loan for the period during and after any lapse of the policy. (5) "Published monthly average" means: (A) Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Service, Inc., or by any successor thereto; or (B) In the event that Moody's Corporate Bond Yield Average - Monthly Average Corporates, or any successor thereto, is no longer published, "published monthly average" means any substantially similar average which the Commissioner shall, by rule or regulation, designate to be used in its place. (b) No policy of life insurance which provides for policy loans shall be issued, delivered, or issued for delivery in this state on or after July 1, 1983, unless it contains one of the following provisions relating to policy loan interest rates: (1) A provision permitting a specified rate of interest on policy loans, not to exceed 8 percent per annum, in accordance with the provisions of paragraph (5) of subsection (a) of Code Section 33-25-3 and the rules and regulations promulgated by the Commissioner pursuant thereto; or (2) A provision permitting an adjustable maximum policy loan interest rate established from time to time by the insurer in accordance with subsection (c) of this Code section. (c) If the policy provides for an adjustable maximum policy loan interest rate as allowed under paragraph (2) of subsection (b) of this Code section, the insurer shall also be required to comply with the following requirements: (1) The policy loan interest rate charged shall not exceed the higher of the following: (A) The published monthly average for the calendar month ending two months before the date on which the rate is determined; or (B) The rate used to calculate the cash surrender values under the policy during the applicable period plus 1 percent per annum. (2) The policy shall contain a provision setting forth the frequency at which the policy loan interest rate is to be determined for that policy; (3) The maximum policy loan interest rate for each policy must be determined at regular intervals at least once every 12 months, but not more frequently than once in any three-month period; (4) At the intervals specified in the policy: (A) The policy loan interest rate being charged may be increased whenever such increase as determined by this Code section would increase the policy loan interest rate by 1/2 percent or more per annum; and (B) The policy loan interest rate being charged must be reduced whenever such reduction as determined in this Code section would reduce the policy loan interest rate by 1/2 percent or more per annum; (5) The insurer shall: (A) Notify the policyholders, at the time a cash loan is made, of the initial policy loan interest rate applicable to the loan; (B) Notify the policyholder who makes a premium loan of the initial policy loan interest rate as soon as it is reasonably practical to do so after the making of the initial loan. Notice need not be given to the policyholder when a further premium loan is made unless there is an increase in the policy loan interest rate, in which case notice shall be given in accordance with subparagraph (C) of this paragraph; (C) Send policyholders with policy loans reasonable advance notice of any increase in the policy loan interest rate; and (D) Include in the notice required to be sent under subparagraph (C) of this paragraph a statement concerning the applicable policy loan interest rate and the frequency at which such rate is determined; and (6) A statement concerning the applicable policy loan interest rate and the frequency at which such rate is determined shall be included in the policy. (d) Notwithstanding any provisions of this title which might be construed to the contrary, no policy shall terminate in a policy year as the sole result of a 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. (e) Notwithstanding any provisions of the laws of this state which might be construed to the contrary, the maximum rate of interest which may be charged on a policy loan shall be governed exclusively by the provisions of this Code section unless such other laws are specifically made applicable to policy loans. (f) No insurer shall be permitted to issue policies with adjustable maximum policy loan interest rates as allowed under paragraph (2) of subsection (b) of this Code section unless such insurer also makes available policies, which may or may not be on the same type of policy form, with specified rates of interest on policy loans in accordance with the provisions of paragraph (1) of subsection (b) of this Code section. (g) The provisions of this Code section shall not apply to any policy issued before July 1, 1983, unless the policyholder agrees in writing to the applicability of such provisions in accordance with such requirements as may be established by the Commissioner.