Iowa Code 511.36 – Interest rates on policy loans
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1. Life insurance policies issued after July 1, 1984 may provide interest rates on policy loans in accordance with either of the following:
a. A maximum interest rate of not more than eight percent per annum.
b. An adjustable maximum interest rate established as permitted under this section.
Terms Used In Iowa Code 511.36
- Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
- Commissioner: means the commissioner of insurance. See Iowa Code 510.1B
- Fixed Rate: Having a "fixed" rate means that the APR doesn't change based on fluctuations of some external rate (such as the "Prime Rate"). In other words, a fixed rate is a rate that is not a variable rate. A fixed APR can change over time, in several circumstances:
- You are late making a payment or commit some other default, triggering an increase to a penalty rate
- The bank changes the terms of your account and you do not reject the change.
- The rate expires (if the rate was fixed for only a certain period of time).
- following: when used by way of reference to a chapter or other part of a statute mean the next preceding or next following chapter or other part. See Iowa Code 4.1
- Insurer: means a person duly licensed in this state as an insurance company pursuant to this subtitle. See Iowa Code 510.1B
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- month: means a calendar month, and the word "year" and the abbreviation "A. See Iowa Code 4.1
- person: means individual, corporation, limited liability company, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, or any other legal entity. See Iowa Code 4.1
- Rule: includes "regulation". See Iowa Code 4.1
- state: when applied to the different parts of the United States, includes the District of Columbia and the territories, and the words "United States" may include the said district and territories. See Iowa Code 4.1
- year: means twelve consecutive months. See Iowa Code 4.1
2. The rate of interest charged on a policy loan made under subsection 1, paragraph “b”, shall not exceed the greater of the following:
a. The published monthly average for the calendar month ending two months before the date on which the rate is determined. For purposes of this subsection, “published monthly average” means one of the following:
(1) Moody’s corporate bond yield average-monthly average corporates as published in Moody’s investors service, inc., or any successor to the investors service.
(2) If Moody’s corporate bond yield average-monthly average corporates is no longer published, a substantially similar average established by rule issued by the commissioner of insurance.
b. The rate used to compute the cash surrender values under the policy during the applicable period plus one percent per annum.
3. If the maximum rate of interest is determined under subsection 1, paragraph “b”, the policy shall state the frequency at which the rate is to be determined for that policy.
4. The maximum rate for the policy shall be determined at established intervals at least once every twelve months, but not more frequently than once every three months. At the intervals established in the policy the rate:
a. May be increased when an increase as determined under subsection 2 would increase the charged rate by one-half percent or more per annum.
b. Shall be reduced when a reduction as determined under subsection 2 would decrease the charged rate by one-half percent or more per annum.
5. When a cash loan is made, the insurer shall notify the policyholder of the initial interest rate on the loan. With respect to premium loans, the insurer shall notify the policyholder of the initial interest rate as soon as the insurer can reasonably do so after making the loan. An insurer need not inform the policyholder of the interest rate when an additional premium loan is made unless the interest rate increases. However, policyholders with either cash or premium loans shall receive reasonable advance notice of any increase in the interest rate. Notices required under this subsection shall also contain the following information:
a. The maximum interest rate on the loan if the loan is a fixed rate loan.
b. The fact that the interest rate is adjustable if the loan is an adjustable rate loan.
c. The frequency at which the rate is to be determined for that policy or if an adjustable interest rate, the established intervals at which the rate may be adjusted.
6. A policy shall not terminate in a policy year solely as the result of change in the interest rate during that year. The life 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.
7. Policies of insurance upon which a loan can be made shall state the following:
a. Whether fixed rate loans or adjustable rate loans are permitted.
b. If fixed rate loans are permitted, the maximum rate of interest on those loans.
c. If adjustable rate loans are permitted, the established intervals at which the rate may be adjusted.
8. Unless the context otherwise requires, for purposes of this section:
a. The rate of interest on policy loans includes the interest rate charged on reinstatement of policy loans for the period during and after a lapse of the policy.
b. “Policy loan” includes a premium loan made under a policy to pay a premium that was not paid to the insurer when due.
c. “Policyholder” includes the owner of the policy or the person designated, on the records of the insurer, to pay premiums.
d. “Policy” includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.
9. Other provisions of law do not apply to policy loan interest rates unless made specifically applicable to the rates.