KRS 304.15-702: Permitted questioning of life insurance applicant concerning financing

of premium payments.

(1) In addition to other questions an insurer may lawfully pose to a life insurance

applicant, insurers may inquire in the application for insurance whether the

proposed owner intends to pay premiums with the assistance of financing from a

lender that will use the policy as collateral to support the financing.

(a) If, as described in KRS 304.15-020(17), the loan provides funds which can be

used for a purpose other than paying for the premiums, costs, and expenses

associated with obtaining and maintaining the life insurance policy and loan,

the application shall be rejected as a violation of the prohibited practices in

KRS 304.15-717.

(b) If the financing does not violate KRS 304.15-717 in this manner, the insurer:

1. May make disclosures to the applicant and the insured, either on the

application or an amendment to the application to be completed no later

than the delivery of the policy, which shall include but not be limited to

the following statement or a substantially similar statement:

"If you have entered into a loan arrangement where the policy is used as

collateral, and the policy does change ownership at some point in the

future in satisfaction of the loan, the following may be true:

a. A change of ownership could lead to a stranger owning an interest

in the insured's life;

b. A change of ownership could in the future limit your ability to

purchase future insurance on the insured's life because there is a

limit to how much coverage insurers will issue on one (1) life;

c. Should there be a change of ownership and you wish to obtain

more insurance coverage on the insured's life in the future, the

insured's higher issue age, a change in health status, or oth er

factors may reduce the ability to obtain coverage and may result in

significantly higher premiums; and

d. You should consult a professional advisor, since a change in

ownership in satisfaction of the loan may result in tax

consequences to the owner, dep ending on the structure of the

loan."; and

2. May require certifications from the applicant or the insured or both

which shall include but not be limited to the following statement or a

substantially similar statement:

"I certify that:

a. I have not entered into any agreement or arrangement providing for

the future sale of this life insurance policy;

b. My loan arrangement for this policy provides funds sufficient to

pay for some or all of the premiums, costs, and expenses

associated with obtaining and maintaining my life insurance

policy, but I have not entered into any agreement by which I am to

receive consideration in exchange for procuring this policy; and

c. The borrower has an insurable interest in the insured."