§ 3206 — Policies which provide for an adjustable maximum rate of interest on policy loans

§ 3206. Policies which provide for an adjustable maximum rate of\ninterest on policy loans. (a) In this section:\n (1) The term "policy" includes: (i) life insurance policies subject to\nthe provisions of item (ii) of subparagraph (F) of paragraph eight of\nsubsection (a) of section three thousand two hundred three of this\narticle, and (ii) annuity contracts subject to the provisions of\nsubsection (c) of section three thousand two hundred nineteen of this\narticle, and (iii) certificates issued by a fraternal benefit society\nsubject to the provisions of paragraph six of subsection (a) of section\nfour thousand five hundred ten of this chapter, and (iv) annuity\ncertificates subject to section four thousand five hundred thirteen of\nthis chapter, when such policies, contracts, or certificates provide for\nloans with adjustable rates of interest.\n (2) The term "policy loan" includes any cash loans and any premium\nloans made under a policy to pay one or more premiums that were not paid\nto the life insurer as they fell due.\n (3) The term "policyholder" includes the owner of the policy or the\nperson designated to pay premiums as shown on the records of the\ninsurer.\n (4) The term "published monthly average" means:\n (A) the Monthly Average Corporates yield shown in Moody's Corporate\nBond Yield Averages published by Moody's Investors Service Inc., or any\nsuccessor thereto; or\n (B) in the event that the Moody's Corporate Bond Yield Averages --\nMonthly Average Corporates is no longer published, a substantially\nsimilar average, established by regulation issued by the superintendent.\n (b) The adjustable maximum rate of interest on policy loans for each\npolicy will be determined at the regular intervals specified in the\npolicy. At the intervals specified in the policy:\n (1) the rate being charged may be increased whenever such increase as\ndetermined under subsection (c) hereof would increase that rate by\none-half per centum or more per annum; and\n (2) the rate being charged must be reduced whenever such reduction as\ndetermined under subsection (c) hereof would decrease that rate by\none-half per centum or more per annum.\n (c) The rate of interest charged on a policy loan made under such a\npolicy shall not exceed the higher of the following:\n (1) the published monthly average for the calendar month ending two\nmonths before the date on which the rate is determined; or\n (2) the rate used to compute the cash surrender values under the\npolicy during the applicable period plus one per centum per annum.\n (d) The insurer shall for any such policy:\n (1) notify the policyholder at the time a cash loan is made of the\ninitial rate of interest on the loan;\n (2) notify the policyholder with respect to premium loans of the\ninitial rate of interest on the loan as soon as it is reasonably\npractical to do so after making the initial loan. Notice need not be\ngiven to the policyholder when a further premium loan is added, except\nas provided in paragraph three hereof;\n (3) send to policyholders with loans reasonable advance notice of any\nincrease in the rate; and\n (4) include in the notices required above the substance of the\npertinent policy provisions permitting an adjustable maximum interest\nrate on policy loans established from time to time by the insurer as\npermitted by law, and specifying the frequency at which the interest\nrate is to be determined by the insurer as permitted by law.\n (e) No policy shall terminate in a policy year as the sole result of\nchange in the interest rate during that policy year, and the insurer\nshall maintain coverage during that policy year until the time at which\nit would otherwise have terminated if there had been no change during\nthat policy year.\n (f) Participating policies issued under the provisions of this section\nshall constitute one or more dividend classifications, as established by\nthe board of directors of the insurer, separate from dividend\nclassifications established for other participating policies issued by\nthe insurer.\n (g) No provision of law regulating the maximum rate of interest which\nmay be charged, taken or received, other than section 190.40 or section\n190.42 of the penal law shall apply to any loan made pursuant to the\nprovisions of this section.\n (h) The provisions of this section shall not be made to apply to any\npolicy issued before January first, nineteen hundred eighty-three unless\nthe policyholder agrees in writing to the applicability of such\nprovisions. Any holder of a policy issued before January first, nineteen\nhundred eighty-three which is of a classification determined by the\ninsurer as eligible may request the insurer to make the provisions of\nthis section applicable to such policy; the superintendent may require\njustification of the eligibility standard determined by the insurer.\n