20-1208. Policy loan on old policies
A. In the case of policies issued prior to the operative date of section 20-1231,
there shall be a provision that after three full years premiums have been paid, the
insurer at any time while the policy is in force will advance on proper assignment or
pledge of the policy and on the sole security thereof at a specified rate of interest not
to exceed six per cent per annum, an amount equal to, or at the option of the owner of
the policy less than, the reserve at the end of the current policy year on the policy and
on any dividend addition thereto, computed according to any mortality table, rate of
interest and the method of valuation permitted by the provisions of this title, the
policy specifying the mortality table and rate of interest adopted for computing such
reserve, less an amount not more than two and one-half per cent of the amount insured by
the policy and of any dividend additions thereto, and that the insurer shall deduct from
such loan value any existing indebtedness on the policy and any unpaid balance of the
premium for the current policy year, and may collect interest in advance on the loan to
the end of the current policy year. An insurer may, in lieu of the provisions permitted
by this section for the deduction from a loan on the policy of an amount not more than
two and one-half per cent of the amount insured by the policy and of any dividend
additions thereto, insert in the policy a provision that one fifth of the entire reserve
may be deducted in case of a loan under the policy, or may provide therein that the
deduction may be the two and one-half per cent or the one fifth of the entire reserve at
the option of the insurer. 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
months after application therefor is made. The policy, at the insurer's option, may
provide for an automatic premium loan, subject to an election of the party entitled to
elect.
B. The provision provided for in subsection A of this section 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.
C. In ascertaining the indebtedness due from policy loans, the interest, if not
paid when due, shall be added to the principal of the loans and shall bear interest at
the rate specified in the note or loan agreement.
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