2023 Arizona Revised Statutes › Title 20 - Insurance › § 20-1209.01 - Maximum rate of interest on policy loans; definitions

20-1209.01.
Maximum rate of interest on policy loans;  definitions
A. Policies issued on or after the effective date of this section shall provide for policy loan interest rates at either of the following levels:
1. A maximum interest rate of not more than eight per cent a year.
2. An adjustable maximum interest rate established by the life insurer as provided by this section.
B. The rate of interest charged on a policy loan made by a life insurer under subsection A,  paragraph 2 of this section 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.
2. The rate used to compute the cash surrender values under the policy during the applicable period plus one per cent a year.
C. If the maximum rate of interest on a policy loan is determined under subsection A,  paragraph 2 of this section,  the policy shall contain a provision prescribing the frequency at which the rate is to be recalculated for that policy.
D. The life insurer shall determine the maximum rate for each policy containing a provision permitting an adjustable policy loan interest rate 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:
1. The life insurer may increase the policy loan interest rate being charged if the increase as determined under subsection B of this section would increase that rate by one-half per cent or more a year.
2. The life insurer shall reduce the policy loan interest rate being charged if the reduction as determined under subsection B of this section would decrease that rate by one-half per cent or more a year.
E. The life insurer shall:
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 if a further premium loan is added,  except as provided in paragraph 3 of this subsection.
3. Send to policyholders with loans reasonable advance notice of any increase in the rate.
4. Include in the notices required by this subsection the substance of the provisions of either subsection A,  paragraph 1,  or subsection A,  paragraph 2 and subsection C of this section,  whichever is applicable.
F. The life insurer shall determine the loan value of the policy according to section 20-1209,  but no policy may terminate in a policy year as the sole result of a change in the interest rate during that policy year,  and the life 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.
G. The substance of the provisions of either subsection A,  paragraph 1,  or subsection A,  paragraph 2 and subsection C of this section shall be set forth in the policies to which they apply.
H. 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.
I. In this section,  unless the context otherwise requires:
1. " Policy"  includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.
2. " Policyholder"  includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.
3. " 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.
4. " Published monthly average"  means either:
(a) The Moody's corporate bond yield average,  monthly average corporates,  as published by Moody's investors service,  incorporated or any successor to the corporation.
(b) If the Moody's corporate bond yield average,  monthly average corporates,  is no longer published,  a substantially similar average,  established by rule of the director.
J. No other provisions of law applies to policy loan interest rates unless made specifically applicable to such a rate.