33-20-131. Policy loan or certificate loan. (1) Subject to the provisions of 33-20-101(2) and except as provided in 33-20-132 through 33-20-136, there must be a provision that after 3 full years' premiums have been paid and after the policy or certificate has a cash surrender value and while a premium is not in default beyond the grace period for payment, the insurer will advance, on proper assignment or pledge of the policy or certificate and on the sole security of the policy or certificate, at a specified rate of interest not exceeding 6% a year, an amount equal to or, at the option of the party entitled to the loan, less than the loan value of the policy or certificate. The commissioner may authorize a rate of interest in excess of 6%, but not in excess of 8% a year (or 7.4% if payable annually in advance), for policies or certificates issued on or after January 1, 1980, if the insurer provides adequate written certification that the holders of the policies will benefit fully from the increased earnings of the insurer resulting from the use of an interest rate in excess of the 6% per annum, such as from higher interest income to the company on policy or certificate loans, higher investment yield resulting from a reduction in policy or certificate loans because of the higher policy or certificate loan interest rate, and any additional income to the company resulting from the use of the higher interest rate in any manner. These benefits to the policyholder must be reflected through higher dividends, lower premiums, or both. The loan value of the policy must be at least equal to the cash surrender value at the end of the then current policy or certificate year, provided that the insurer may deduct, either from the loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining the cash surrender value (including interest then accrued but not due), an unpaid balance of the premium for the current policy or certificate year, and interest on the loan to the end of the current policy or certificate year unless the policyowner by written notice to the insurer elects to defer payment of interest until it has accrued. The policy or certificate may also provide that if interest on indebtedness is not paid when due, it must be added to the existing indebtedness and must bear interest at the same rate, and that if and when the total indebtedness on the policy or certificate, including interest due or accrued, equals or exceeds the amount of its loan value, the policy or certificate terminates and is void. The policy or certificate must reserve to the insurer the right to defer the granting of a loan, other than for the payment of a premium to the insurer, for 6 months after application for the loan. The policy or certificate, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect.

(2) This section does not apply to term policies or to term insurance benefits provided by rider or supplemental policy provisions or to industrial life insurance policies.