Bill 66

                    Current Status

Bill Number:               66
Ratification Number:       504
Act Number:                432
Introducing Body:          Senate
Subject:                   Regulate interest rates on life insurance
                           policy loans and to permit insurers to include
                           in such policies a provision for periodic
                           adjustment of policy loan interest rates

(A432, R504, S66)

AN ACT TO REGULATE INTEREST RATES ON LIFE INSURANCE POLICY LOANS AND TO PERMIT INSURERS TO INCLUDE IN SUCH POLICIES A PROVISION FOR PERIODIC ADJUSTMENT OF POLICY LOAN INTEREST RATES.

Be it enacted by the General Assembly of the State of South Carolina:

Findings

SECTION 1. The General Assembly finds that it is necessary to enact legislation to permit and set guidelines for life insurers to include in life insurance policies after the effective date of this act a provision for periodic adjustment of policy loan interest rates.

Published monthly average

SECTION 2. Published Monthly Average means:

(a) Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto; 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 regulation issued by the Chief Insurance Commissioner.

Interest rate

SECTION 3. Life insurance policies issued after the effective date of this act may provide for policy loan interest rates of not more than eight percent per annum.

Adjustable maximum interest rate

SECTION 4. (a) In the alternative life insurers may issue policies that permit an adjustable maximum interest rate established from time to time by the life insurer as permitted by law. Such adjustable maximum interest rates shall not exceed the higher of the following:

(1) The Published Monthly Average for the calendar month ending two 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 per annum.

(b) If the maximum rate of interest is determined pursuant to this section, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.

(c) The maximum rate for each policy must be determined at regular intervals but only once each twelve months.

(d) At the intervals specified in the policy:

(1) The rate being charged may be increased whenever such increase as determined under subsection (a) would increase that rate by one-half percent or more per annum, but not more than twice in any calendar year.

(2) The rate being charged must be reduced whenever such reduction as determined under subsection (a) would decrease that rate by one-half percent or more per annum.

(e) The life insurer must:

(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 premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so, but in no event later than sixty days after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in item (3) below.

(3) Send to policyholders with loans at least thirty days advance notice of any increase in the rate and within due course notify the policyholder of any decrease in the interest rate.

(4) Include in the notices required above the substance of the pertinent provisions of Section 3 or subsections (a) and (b) of this section.

(f) The loan value of the policy must be determined in accordance with the provisions of this act 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 life insurer must 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 Section 3 or subsections (a) and (b) of this section must be set forth in the policies to which they apply.

(h) For the purposes of this section:

(1) The rate of interest on policy loans hereunder shall include the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.

(2) Policy loan includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due.

(3) Policyholder includes the owner of the policy or the person designated to pay premiums, if different, as shown on the records of the life insurer.

(4) Policy includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.

Provided, however, before May 1, 1986, no life insurer may issue policies that permit such rates unless at the same time it also makes available policies providing for a rate of interest under Section 3.

Policies with less than five thousand dollars face value

SECTION 5. Notwithstanding any other provision of this act, for life insurance policies having a face value of less than five thousand dollars, life insurers may issue policies with an adjustable maximum policy loan interest rate when the policy loan is three hundred dollars or more, but if the policy loan is less than three hundred dollars, a fixed policy loan interest rate of not more than eight percent per annum shall be charged.

Applicability

SECTION 6. The provisions of this act shall not apply to any insurance contract issued before the effective date of this act unless the policyholder requests in writing the applicability of the provisions.

Written disclosure form

SECTION 7. At the time any insurance company makes a policy or premium loan that provides for periodic adjustment of policy or premium loan interest rates, the insurance company shall provide a separate written disclosure form to the policyholder using plain understandable language that:

(a) provides an explanation of the dollar impact on policy or premium loans when the adjustable interest rate moves up or down;

(b) provides an explanation of the impact of a policy or premium loan on the benefits payable to the policyholder upon the death of the insured if a policy or premium loan remains unpaid at the time of death of the insured.

Time effective

SECTION 8. This act shall take effect May 1, 1985.