Policy Loan Interest Rate Provisions

PURPOSE: This rule establishes the terms and conditions of policy loan interest rate provisions pursuant to section 376.672, RSMo. PUBLISHER’S NOTE: The secretary of state has determined that the publication of the entire text of the material which is incorporated by reference as a portion of this rule would be unduly cumbersome or expensive. Therefore, the material which is so incorporated is on file with the agency who filed this rule, and with the Office of the Secretary of State. Any interested person may view this material at either agency’s headquarters or the same will be made available at the Office of the Secretary of State at a cost not to exceed actual cost of copy reproduction. The entire text of the rule is printed here. This note refers only to the incorporated by reference material. (1) Definitions. (A) Policy shall mean any policy, contract or certificate containing a provision for policy loans issued by a life insurance company or a fraternal benefit society in this state. (B) Published monthly average means— 1. The Moody’s Corporate Bond Yield Average—Monthly Average Corporates as published by Moody’s Investors Service, Inc. or any successor to it; or 2. In the event that The Moody’s Corporate Bond Yield Average—Monthly Average Corporates is no longer published, a substantially similar average, established by the director. (C) Policy loan includes any premium loan made under a policy to pay one (1) or more premiums that were not paid to the life insurer or fraternal benefit society as they fell due. (D) Policyholder includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer or fraternal benefit society. (2) Maximum Rate of Interest of Policy Loans. (A) Policies issued on or after August 13, 1982 shall provide for policy loan interest rates as follows: 1. A provision permitting a maximum interest rate of not more than eight percent (8%) per annum; or 2. A provision permitting an adjustable maximum interest rate established from timeto-time by the life insurer or fraternal benefit society as permitted by law. (B) The rate of interest charged on a policy loan made under paragraph (2)(A)2. shall not exceed the higher of the following: 1. The Published Monthly Average for the calendar month ending two (2) months before the date on which the rate is determined; or 2. The rate used to compute the cash surrender values under the policy during the applicable period plus one percent (1%) per annum. (C) If the maximum rate of interest is determined pursuant to paragraph (2)(A)2., 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 must be determined at regular intervals at least once every twelve (12) months, but not more frequently than once in any three (3)- month period. At the following intervals specified in the policy: 1. The rate being charged may be increased whenever the increase as determined under subsection (2)(B) would increase that rate by one-half percent (1/2%) or more per annum; and 2. The rate charged must be reduced whenever this reduction as determined under subsection (2)(B) would decrease that rate by one-half percent (1/2%) or more per annum. (E) The life insurer or fraternal benefit society shall— 1. Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan; 2. Notify the policyholder with respect to the premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in paragraph (2)(E)3.; 3. Send to policyholders with loans reasonable advance notice of any increase in the rate; and 4. Include in the notices required, the substance of the pertinent provisions of subsections (2)(A) and (C). (F) No policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year and the life insurer or fraternal benefit society 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) The substance of the pertinent provisions of subsections (2)(A) and (C) shall be set forth in the policies to which they apply. (H) 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 any lapse of a policy. AUTHORITY: sections 374.045, RSMo 1986 and 536.021, RSMo Supp. 1992. This rule was previously filed as 4 CSR 190-13.220. Emergency rule filed July 14, 1982, effective Aug. 13, 1982, expired Nov. 11, 1982. Original rule filed July 14, 1982, effective Nov. 15, 1982. *Original authority: 374.045, RSMo 1967 and 536.021, RSMo 1975, amended 1976, 1989 and 1992.