A. There shall be a provision that after three (3) full years' premiums have been paid, the insurer, at any time while the policy is in force, will loan on the execution of a proper note or loan agreement by the owner of the policy, and on proper assignment of the policy and on the sole security thereof, at a specified rate of interest, not in excess of six percent (6%) per annum, on policies issued prior to January 1, 1976, a sum equal to or, at the option of the owner of the policy, less than the cash value of the policy at the end of the current policy year and of any dividend additions thereto. A policy issued on or after such date and prior to July 1, 1982, shall contain either, but not both, of the following policy loan interest rate provisions: 1. A provision that a policy loan shall bear interest at a specified rate, not in excess of eight percent (8%) per annum; or 2. A provision that all loans under the policy shall bear interest at a variable rate, not in excess of eight percent (8%) per annum, specified from time to time by the insurer. The effective date of any increase in such variable rate shall not be less than one (1) year after the effective date of the previous rate. B. With respect to policies providing for a variable rate, the insurer shall: 1. When a loan is made and when notification of interest due is furnished, give notice of the variable rate currently effective; 2. As to any loans outstanding forty (40) days before the effective date of any increase in the variable rate, give notice of any such increase at least thirty (30) days before such effective date; and 3. As to any loans made during the forty (40) days before the effective date of this increase, give notice of such increase when the loan is made. Every such notice shall be given as directed by the policy owner and any assignee as shown on the records of the insurer at its home office. C. With respect to policies issued on or after July 1, 1982, the following provisions shall apply: 1. For purposes of this subsection, the "Published Monthly Average" means: a. Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto, or b. 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; 2. Policies issued on or after July 1, 1982, shall provide for policy loan interest rates as follows: a. a provision permitting a maximum interest rate of not more than eight percent (8%) per annum, or b. a provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law; 3. The rate of interest charged on a policy loan made under subparagraph b of paragraph 2 of this subsection 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%) per annum; 4. If the maximum rate of interest is determined pursuant to subparagraph b of paragraph 2 of this subsection, the policy shall contain a provision setting forth the frequency at which time the rate is to be determined for that policy; 5. The maximum rate for each policy must be determined at regular intervals at least once every twelve (12) months, but not more frequently than once in any three-month period. At the intervals specified in the policy: a. the rate being charged may be increased whenever such increase as determined under paragraph 3 of this subsection would increase that rate by one-half of one percent (1/2 of 1%) or more per annum, or b. the rate being charged must be reduced whenever such reduction as determined under paragraph 3 of this subsection would decrease that rate by one-half of one percent (1/2 of 1%) or more per annum; 6. 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 subparagraph c below, c. send to policyholders with loans reasonable advance notice of any increase in the rate, and d. include in the notices required above, the substance of the pertinent provisions of paragraphs 2 and 4 of this subsection; 7. The loan value of the policy shall be determined in accordance with Section 4029 of this title, but 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 the policy would otherwise have terminated if there had been no change during that policy year; 8. The substance of the pertinent provisions of paragraphs 2 and 4 of this subsection shall be set forth in the policies to which they apply; 9. For purposes of this subsection: a. the rate of interest on policy loans permitted under this subsection includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy, b. the term "policy loan" includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due, c. the term "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. the term "policy" includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans; 10. No other provision of law shall apply to policy loan interest rates unless made specifically applicable to such rates; and 11. The provisions of this act shall not apply to any insurance contract issued before the effective date of this act unless the policyholder agrees in writing to the applicability of such provisions. D. The company may deduct from such loan value any existing indebtedness on or secured by the policy not already deducted in determining such cash value including interest due or accrued, and any unpaid balance of the premium for the current policy year, and any interest which may be allowable on the loan to the end of the current policy year; provided, that the policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six (6) months after the application therefor is made. The policy may also provide that if interest on any indebtedness is not paid when due it shall then be added to the existing indebtedness and shall bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value thereof, then the policy shall terminate and become void, but not until at least thirty (30) days' notice shall have been mailed by the insurer to the last-known address of the insured or policy owner and of any assignee of record at the home office of the insurer. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect. No condition other than as herein provided shall be exacted as a prerequisite to any such loan. This provision shall not be required in term insurance, nor shall it apply to temporary insurance or pure endowment insurance, issued or granted in exchange for lapsed or surrendered policies.
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