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§ 510e. Policy loan interest rate law

Purdon's Pennsylvania Statutes and Consolidated StatutesTitle 40 P.S. Insurance

Purdon's Pennsylvania Statutes and Consolidated Statutes
Title 40 P.S. Insurance (Refs & Annos)
Chapter 2. Insurance Companies (Refs & Annos)
Article IV. Life Insurance
(a) General Provisions Relating to Stock and Mutual Companies (Refs & Annos)
40 P.S. § 510e
§ 510e. Policy loan interest rate law
Currentness
(a) The purpose of this section is to permit and set guidelines for companies to include in life insurance policies and annuity contracts, if such contracts contain a loan provision, issued after the effective date of this act a provision for periodic adjustment of policy loan interest rates.
(b) For purposes of this section, the “Published Monthly Average” means:
(1) Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc. or any successor thereto; or
(2) In the event that Moody's Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average, established by regulation issued by the Insurance Commissioner.
(c)(1) Policies issued on or after the effective date of this act shall provide for policy loan interest rates as follows:
(i) a provision permitting a maximum interest rate of not more than eight per centum per annum; or
(ii) a provision permitting an adjustable maximum interest rate established from time to time by the company as permitted by law.
(2) The rate of interest charged on a policy loan made under subsection (c)(1)(ii) shall not exceed the higher of the following:
(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 the cash surrender values under the policy during the applicable period plus one per centum per annum.
(3) If the maximum rate of interest is determined pursuant to subsection (c)(1)(ii), the policy shall 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 at least once every twelve 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 such increase as determined under subsection (c)(2) would increase that rate by one-half per centum or more per annum.
(ii) The rate being charged must be reduced whenever such reduction as determined under subsection (c)(2) would decrease that rate by one-half per centum or more per annum.
(5) The company 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. Notice need not be given to the policyholder when a further premium loan is added, except as provided in subsection (c)(5)(iii) below;
(iii) send to policyholders with loans reasonable advance notice of any increase in the rate; and
(iv) include in the notices required above the substance of the pertinent provisions of subsections (c)(1) and (3).
(6) The loan value of the policy shall be determined in accordance with subsection (h) of section four hundred and ten but no policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year, and the company 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) The substance of the pertinent provisions of subsection (c)(1) and (3) shall be set forth in the policies to which they apply.
(8) For purposes of this section:
(i) 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.
(ii) The term “policy loan” includes any premium loan made under a policy to pay one or more premiums that were not paid to the company as they fell due.
(iii) The term “policyholder” includes the owner of the policy or the person designated to pay premiums as shown on the records of the company.
(iv) The term “policy” include certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.
(9) No other provision of law shall apply to policy loan interest rates unless made specifically applicable to such rates.
(d) The provisions of this section shall not apply to any insurance contract issued before the effective date of this act unless the policyholder agrees in writing to the applicability of such provisions.

Credits

1921, May 17, P.L. 682, art. IV, § 410F, added 1982, April 8, P.L. 297, No. 84, § 3, imd. effective.
40 P.S. § 510e, PA ST 40 P.S. § 510e
Current through Act 11 of the 2024 Regular Session. Some statute sections may be more current, see credits for details.
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