CHAPTER 12.3. INTEREST RATES ON INSURANCE POLICY LOANS
IC 27-1-12.3
Chapter 12.3. Interest Rates on Insurance Policy Loans
IC 27-1-12.3-1
Definitions
Sec. 1. As used in this chapter:
(a) "Published monthly average" means:
(1) Moody's corporate bond yield average-monthly averagecorporates as published by Moody's Investors Service, Inc. orany successor thereto; or
(2) in the event that the Moody's corporate bond yieldaverage-monthly average corporates is no longer published, asubstantially similar average, established by regulation issuedby the insurance commissioner.
(b) "Insurer" means an entity issuing a policy.
(c) "Policy loan" means:
(1) a loan secured by a policy of life insurance underIC 27-1-12-6(8) and IC 27-1-12-19;
(2) any premium loan made under a policy to pay one (1) ormore premiums that were not paid to the life insurer as theybecame due; or
(3) a loan secured by any certificate or annuity contract thatprovides loans on the security of the certificate or annuitycontract.
(d) "Policyholder" includes the owner of the policy or the persondesignated to pay premiums as shown on the records of the lifeinsurer.
(e) "Policy" means:
(1) a life insurance policy;
(2) a certificate issued by a fraternal benefit society; or
(3) an annuity contract;
that provides for policy loans.
(f) "Rate of interest" or "interest rate" means the rate of intereston policy loans, including the rate of interest charged onreinstatement of policy loans for the period during and after anylapse.
As added by Acts 1981, P.L.240, SEC.1.
IC 27-1-12.3-2
Required provisions in policies
Sec. 2. Policies issued after August 31, 1983, must contain aprovision for policy loan interest rates permitting:
(1) a maximum interest rate of not more than eight percent (8%)per year; or
(2) an adjustable interest rate established from time to time asfollows:
(A) The maximum rate of interest shall be the greater of therate determined by the published monthly average for thecalendar month ending two (2) months before the date onwhich the interest rate is determined or the rate used to
compute the cash surrender values under the policy duringthe applicable loan period as required in IC 27-1-12-7(5),plus one percent (1%) per year.
(B) The maximum interest rate for each policy shall bedetermined at regular intervals at least once every twelve(12) months, but not more frequently than once every three(3) months. The interval must be specified in the policy.
(C) As of the time of the periodic maximum interestdetermination, the interest rate on the policy loan will befixed, not below the minimum rate, as follows:
(i) If the maximum rate is greater than the last previousestablishment or change of the interest rate, the interest ratemay at the option of the insurer be increased to any rate notin excess of the maximum rate.
(ii) If the maximum rate is less than the last previousestablishment or change of the interest rate, the interest ratewill be decreased to the new maximum rate.
(iii) Notwithstanding subparts (i) and (ii) of this clause (C),no change in interest rate which is less than one-half percent(1/2%) will be made.
(D) The most recently determined interest rate on a loanmade on any policy will apply to the unpaid amount of allpolicy loans previously made thereon.
As added by Acts 1981, P.L.240, SEC.1. Amended by P.L.260-1983,SEC.6.
IC 27-1-12.3-3
Variable interest rate loans; duties of insurer
Sec. 3. With respect to variable interest rate loans under section2 of this chapter, the insurer shall:
(1) notify the policyholder at the time a cash loan is made of theinitial rate of interest on the loan;
(2) notify the policyholder as soon as is reasonably practicalafter a premium loan is made of the initial rate of interest on theloan, except that notice need not be given the policyholderwhen a further premium loan is added other than the noticerequired by subdivision (3) of this section;
(3) send to the policyholder reasonable advance notice of anyincrease in the loan interest rate; and
(4) include in the notices required by this section, whether therate is fixed or variable and, if variable, the permitted frequencyof change.
As added by Acts 1981, P.L.240, SEC.1.
IC 27-1-12.3-4
Loan value of policy; determination; termination of policy due toincrease in interest rate
Sec. 4. (a) The loan value of a policy shall be determined inaccordance with IC 27-1-12-6(8); however, a policy shall notterminate in a policy year as the sole result of an increase in the
interest rate and the failure of the policyholder to pay the amount ofinterest required by that increase during that policy year. In suchevent, the insurer shall maintain coverage during that policy yearuntil the time at which the policy would otherwise have terminatedif there had been no change during that policy year.
As added by Acts 1981, P.L.240, SEC.1.
IC 27-1-12.3-5
Nonapplicability of other laws
Sec. 5. No statute other than this chapter applies to policy loaninterest rates, except to the extent that a statute enacted after the1981 regular session of the Indiana general assembly specificallyprovides otherwise.
As added by Acts 1981, P.L.240, SEC.1.
IC 27-1-12.3-6
Inapplicability to contracts issued before September 1, 1981;agreement excepted
Sec. 6. The provisions of this chapter shall not apply to anyinsurance contract issued before September 1, 1981, unless thepolicyholder agrees in writing to the applicability of such provisions.
As added by Acts 1981, P.L.240, SEC.1.