2023 New York Laws › ISC - Insurance › Article 32 - Insurance Contracts - Life, Accident and Health, Annuities › 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.