N.Y. Insurance Law § 3206: Policies which provide for an adjustable maximum rate of interest on policy loans

§ 3206. Policies which provide for an adjustable maximum rate of

interest on policy loans. (a) In this section:

(1) The term "policy" includes: (i) life insurance policies subject to

the provisions of item (ii) of subparagraph (F) of paragraph eight of

subsection (a) of section three thousand two hundred three of this

article, and (ii) annuity contracts subject to the provisions of

subsection (c) of section three thousand two hundred nineteen of this

article, and (iii) certificates issued by a fraternal benefit society

subject to the provisions of paragraph six of subsection (a) of section

four thousand five hundred ten of this chapter, and (iv) annuity

certificates subject to section four thousand five hundred thirteen of

this chapter, when such policies, contracts, or certificates provide for

loans with adjustable rates of interest.

(2) The term "policy loan" includes any cash loans and any premium

loans made under a policy to pay one or more premiums that were not paid

to the life insurer as they fell due.

(3) The term "policyholder" includes the owner of the policy or the

person designated to pay premiums as shown on the records of the

insurer.

(4) The term "published monthly average" means:

(A) the Monthly Average Corporates yield shown in Moody's Corporate

Bond Yield Averages published by Moody's Investors Service Inc., or any

successor thereto; or

(B) in the event that the Moody's Corporate Bond Yield Averages --

Monthly Average Corporates is no longer published, a substantially

similar average, established by regulation issued by the superintendent.

(b) The adjustable maximum rate of interest on policy loans for each

policy will be determined at the regular intervals specified in the

policy. At the intervals specified in the policy:

(1) the rate being charged may be increased whenever such increase as

determined under subsection (c) hereof would increase that rate by

one-half per centum or more per annum; and

(2) the rate being charged must be reduced whenever such reduction as

determined under subsection (c) hereof would decrease that rate by

one-half per centum or more per annum.

(c) The rate of interest charged on a policy loan made under such a

policy 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 per centum per annum.

(d) The insurer shall for any such policy:

(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 after making the initial loan. Notice need not be

given to the policyholder when a further premium loan is added, except

as provided in paragraph three hereof;

(3) send to policyholders with loans reasonable advance notice of any

increase in the rate; and

(4) include in the notices required above the substance of the

pertinent policy provisions permitting an adjustable maximum interest

rate on policy loans established from time to time by the insurer as

permitted by law, and specifying the frequency at which the interest

rate is to be determined by the insurer as permitted by law.

(e) No policy shall terminate in a policy year as the sole result of

change in the interest rate during that policy year, and the 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.

(f) Participating policies issued under the provisions of this section

shall constitute one or more dividend classifications, as established by

the board of directors of the insurer, separate from dividend

classifications established for other participating policies issued by

the insurer.

(g) No provision of law regulating the maximum rate of interest which

may be charged, taken or received, other than section 190.40 or section

190.42 of the penal law shall apply to any loan made pursuant to the

provisions of this section.

(h) The provisions of this section shall not be made to apply to any

policy issued before January first, nineteen hundred eighty-three unless

the policyholder agrees in writing to the applicability of such

provisions. Any holder of a policy issued before January first, nineteen

hundred eighty-three which is of a classification determined by the

insurer as eligible may request the insurer to make the provisions of

this section applicable to such policy; the superintendent may require

justification of the eligibility standard determined by the insurer.