This section applies to all life insurance policies and annuity contracts, including certificates issued by fraternal insurers, which contain policy loan provisions. A “policy loan” includes any arrangement by which a premium is paid to the life insurer after the normal due date.
Terms Used In Utah Code 31A-22-420
Application: means a document:
(a)
(i)
completed by an applicant to provide information about the risk to be insured; and
(ii)
that contains information that is used by the insurer to evaluate risk and decide whether to:
(A)
insure the risk under:
(I)
the coverage as originally offered; or
(II)
a modification of the coverage as originally offered; or
(B)
decline to insure the risk; or
(b)
used by the insurer to gather information from the applicant before issuance of an annuity contract. See Utah Code 31A-1-301
Insurance: includes :
(i)
a risk distributing arrangement providing for compensation or replacement for damages or loss through the provision of a service or a benefit in kind;
(ii)
a contract of guaranty or suretyship entered into by the guarantor or surety as a business and not as merely incidental to a business transaction; and
(iii)
a plan in which the risk does not rest upon the person who makes an arrangement, but with a class of persons who have agreed to share the risk. See Utah Code 31A-1-301
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, unless otherwise expressed. See Utah Code 68-3-12.5
for property or casualty insurance, that cost of insurance per exposure unit either expressed as:
(A)
a single number; or
(B)
a pure premium rate, adjusted before the application of individual risk variations based on loss or expense considerations to account for the treatment of:
As used in this section, “published monthly average” means:
(a)
The monthly average of the composite yield on Moody’s Corporate Bond Yield Average–Monthly Average Corporates, as published by Moody’s Investors Service, Inc., or any successor to that publication; or
(b)
in the event that Moody’s Corporate Bond Yield Average–Monthly Average Corporates is no longer published, a substantially similar average, established by the commissioner by rule.
(3)
(a)
Policies issued on or after May 12, 1981, shall provide for policy loan interest rates by:
(i)
a provision permitting a maximum interest rate of not more than 8% per annum; or
(ii)
a provision permitting an adjustable maximum interest rate calculated under this section.
(b)
The rate of interest charged on a policy loan made under Subsection (3)(a)(ii) may not exceed the higher of:
(i)
the published monthly average for the calendar month ending two months before the date on which the rate is determined; or
(ii)
the rate used to compute cash surrender values under the policy during the same period, plus 1% per annum.
(c)
If the maximum rate of interest is determined under Subsection (3)(a)(ii), 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 under Subsection (3)(a)(ii) for each policy shall be determined at regular intervals at least once every 12 months, but not more frequently than once in any three-month period. At the intervals specified in the policy:
(i)
the rate being charged may be increased whenever the increase determined under Subsection (3)(b) would increase that rate by 1/2% or more per annum; and
(ii)
the rate being charged shall be reduced whenever the reduction determined under Subsection (3)(b) would decrease that rate by 1/2% or more per annum.
(e)
Every life insurer shall:
(i)
notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan;
(ii)
notify the policyholder with respect to 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, but notice need not be given to the policyholder when a further premium loan is added, except as provided in Subsection (3)(e)(iii);
(iii)
send to policyholders with loans, reasonable advance notice of any increase in the rate; and
(iv)
include in the notices required by Subsection (3)(e)(i), (ii), and (iii) the substance of the pertinent provisions of Subsections (3)(a) and (c).
(f)
No policy may terminate during a policy year solely because of a change in the interest rate during that policy year. Coverage shall continue during that policy year until it would have terminated if there had been no change in interest rate during that policy year.
(g)
The pertinent provisions of Subsections (3)(a) and (c) shall be set forth in the policies to which they apply.
(4)
This section applies to an insurance policy issued before May 12, 1981, only if the policyholder agrees to its application in writing, after receiving explicit disclosure of the provisions regarding premiums, dividends, and nonforfeiture cash values of the existing and amended insurance policies prior to execution of the written agreement. No other rights of the policyholder under the insurance policy are affected by this agreement.
(5)
The policy shall contain a provision permitting the insurer, upon the commissioner’s approval, to defer granting a policy loan for up to six months after application for the loan. Policy loans for the payment of premium to the insurer may not be deferred under this subsection.
