33-20-135. Variable interest rates on policy loans. (1) (a) Life insurance policies issued on or after October 1, 1985, may have a provision permitting policy loan interest rates as follows:
(i) a maximum interest rate of not more than 8% a year; or
(b) A life insurer is not permitted to issue policies containing variable rates of interest on policy loans under subsection (1)(a)(ii) unless the insurer also makes available policies, which may or may not be on the same plan of insurance, with fixed rates of interest on policy loans under subsection (1)(a)(i).
(2) The rate of interest charged on a policy loan made under subsection (1)(a)(ii) may not exceed the greater of:
(a) the published monthly average for the calendar month ending 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 1% a year.
(3) If the maximum rate of interest is determined pursuant to subsection (1)(a)(ii), the policy must contain a provision setting forth the frequency at which the rate is to be determined for that policy.
(4) The maximum rate for each policy must be determined at regular intervals that must occur at least once every 12 months, but may not occur more frequently than once in any 3-month period. At the intervals specified in the policy, the rate being charged:
(a) may be increased whenever an increase as determined under subsection (2) would increase the rate by 0.5% or more a year;
(b) must be reduced whenever a reduction as determined under subsection (2) would decrease the rate by 0.5% or more a year.
(5) The life insurer shall:
(a) notify the policyholder of the initial rate of interest on the loan at the time a cash loan is made;
(b) notify the policyholder, with respect to premium loans, of the initial rate of interest on the loan as soon as practical after making the initial loan. Notice does not have to be given to the policyholder when a further premium loan is added, except as provided in subsection (5)(c).
(c) send reasonable advance notice of any increase in the rate to policyholders with loans; and
(d) include in the notices required by this subsection (5) the substance of subsection (1) and the frequency of rate determinations as provided in subsection (3).
(6) The policy may provide that if interest on any indebtedness is not paid when due, the interest will be added to the existing indebtedness and will bear interest at the same rate as the indebtedness.
(7) The loan value of the policy must be determined in accordance with the provisions of 33-20-131, but no policy may be terminated in a policy year solely as a result of a change in the interest rate during that policy year. 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 interest rate change during that policy year.
(8) The substance of the pertinent provisions of subsections (1) and (3) must be set forth in the policies to which they apply.
(9) For purposes of this section, the following definitions apply:
(a) "Policy" includes certificates issued by a fraternal benefit society and annuity contracts that provide for policy loans.
(b) "Policy loan" includes any premium loan made under a policy used to pay one or more premiums that were not paid to the life insurer as they became due. The rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after the lapse of a policy.
(c) "Policyholder" includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.
(10) No other provision of law applies to policy loan interest rates unless it is made specifically applicable to such rates.