Life insurance policies that allow policy loans must include a compliant maximum loan-interest provision, and insurers must give required notices and keep coverage from ending solely because of an interest-rate change.
§932. Maximum rate of interest on policy loans A. Each life insurance policy contract entered into on or after September 10, 1982, which provides for policy loans shall contain a provision concerning maximum policy loan interest rates as follows: (1) A provision permitting a maximum interest rate of not more than twelve percent per annum; or (2) A provision permitting an adjustable maximum interest rate established in accordance with this Section. B. The rate of interest charged on a policy loan made under Paragraph (2) of Subsection A of this Section shall not exceed the higher of: (1) The published monthly average for the calendar month ending two months prior to the date on which the rate is determined. (2) The rate used to compute the cash surrender values under the policy during the applicable period plus one percent per annum. C. If the adjustable maximum rate of interest provided in Paragraph (2) of Subsection A of this Section is used, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy. D. The maximum rate for each policy referred to in Paragraph (2) of Subsection A of this Section shall be determined at regular intervals at least once every twelve months, but not more frequently than once in any three-month period. At the intervals specified in the policy: (1) The interest rate being charged may be increased whenever such increase, as determined under Subsection B of this Section, would increase that rate by one-half of one percent or more per annum. (2) The rate being charged shall be reduced whenever such reduction, as determined under Subsection B of this Section, would decrease that rate by one-half of one percent or more per annum. E. The insurer shall, at the time a cash loan is made, notify the policyholder of the initial rate of interest on the loan, and shall notify the policyholder of the initial rate of interest on the premium loan as soon as it is reasonably practical to do so after making the initial loan. Such notice need not be given to the policyholder when a further premium loan is added except as otherwise provided in this Subsection. The insurer shall send reasonable advance notice of any increase in the rate to policyholders with loans, and include in the notices required in this Subsection, the substance of the pertinent provisions of Subsections A and C of this Section. F. The loan value of the policy shall be determined in accordance with R.S. 22:936 or 952, but no policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year, and the 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. G. For purposes of this Section: (1) The term "rate of interest on policy loans" used in this Section shall include the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy. (2) The term "policy loan" shall include any premium loan made under a policy to pay one or more premiums that were not paid to the insurer as they became due. (3) The term "policyholder" shall include the owner of the policy or the person designated to pay premiums as shown on the records of the insurer. (4) The term "policy" shall include certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans. (5) The term "published monthly average" shall mean Moody's Corporate Bond Yield Average--Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto. In the event that Moody's Corporate Bond Yield Average--Monthly Average Corporates is no longer published, the commissioner of insurance shall establish by regulation a substantially similar average. H. No other provision of law shall apply to policy loan interest rates unless made specifically applicable to such rates. Added by Acts 1982, No. 465, §1; Redesignated from R.S. 22:170.1 by Acts 2008, No. 415, §1, eff. Jan. 1, 2009; Acts 2011, No. 94, §1, eff. Jan. 1, 2012.