2023 Laws of Puerto Rico › TITLE TWENTY-SIX - Insurance (§§ 101 — 10377) › Subtitle 1 - Insurance Generally (§§ 101 — 4513) › Chapter 13A - Life Insurance and Annuities (§§ 1336 — 1379) › § 1346 - Policy loan

(1) Excepting term insurance, the policy shall have a clause to the effect that after three (3) full years’ premiums have been paid thereon, the insurer, at any time while the policy is in force other than as extended term insurance, will advance, on proper assignment or pledge of the policy and on the sole security thereof, at a specified rate of interest not exceeding eight percent (8%) per annum for policies issued prior to the effective date of this act, a sum which, together with any interest to the end of the current policy year, shall be equal to the loan value of the policy or, at the option of the person entitled thereto, less than that value.
The policy shall provide for a loan value at least equal to the cash surrender value of the policy at the end of the current policy year, less any indebtedness not already deducted in determining such cash surrender value, less any unpaid balance of the premium for the current policy year; and that if the loan is made or paid up on a date other than the anniversary of the policy, the insurer shall be entitled to interest for the portion of the current policy year, at the rate of interest specified in the policy.
The policy may further provide that if the interest on the loan is not paid when due, it shall be added to and made a part of the existing indebtedness and shall bear interest at the same rate; and that if, and when the total indebtedness on the policy, including interest due or accruing, is equal to or exceeds the amount of the loan value thereof which would otherwise exist at such time, the policy shall terminate in full settlement of such indebtedness and become void; except that it shall be stipulated in the policy that no such termination shall be effective until at least thirty (30) days have passed after notice of the pendency of the termination was mailed by the insurer to the insured and the assignee, if any, at their last respective address on record with the insurer.
(a) The policy shall describe the effect of loans in effect on the death benefit, cash value and maturity value.
(b) If the policy allows an automatic loan for the payment of premiums, the same shall indicate whether said loan is subject to the election of the owner of the policy. The policy shall clearly describe how the automatic loan for the payment of premiums shall be activated and shall establish what shall occur if the available loan value is insufficient for the payment of the premiums owed.
(c) The policy shall include a clause to the effect of providing that if the total indebtedness, including interest due, is equal or exceeds the surrender value of the policy, plus any other additional value accrued by the application of dividends, a notice of termination shall be sent by mail to the insured, to the last known address, (30) days prior to the termination of the policy.
(2) With respect to policies remitted on and after the effective date of this act, the following precepts shall govern:
(a) For the purposes of this subsection, the phrase “published monthly average” shall have the following meaning:
(i) Moody’s Corporate Bond Yield Average Monthly Average Corporates, as published by Moody’s Investors Service, Inc., or any succeeding corporation, or
(ii) in the event Moody’s Corporate Bond Yield Average-Monthly Average Corporates fails to be published, a substantially similar average established in the regulations issued by the Insurance Commissioner.
(b) The policies issued on or after the effective date of this act shall provide the following with respect to the interest rates of said policies:
(i) A provision allowing a maximum interest rate not greater than [eight percent] (8%) per annum, or
(ii) a provision allowing an adjustable maximum interest rate established from time to time by the insurer, in accordance with what is allowed in our system of laws.
(c) The interest rate regarding a policy loan granted under clause (b) (ii) of this subsection shall not exceed the highest of the following:
(i) The published monthly average for the calendar month which concluded two (2) months prior to the date on which the rate is determined.
(ii) The rate used to compute the cash surrender value under the policy during the pertinent period, plus [one percent] (1%) per annum.
(iii) Nevertheless, the maximum rate of interest shall never exceed [eighteen percent] (18%) per annum.
(d) If the maximum rate of interest is determined according to the provisions of clause (b)(ii) of this subsection, the policy shall include a clause establishing the frequency with which the rate for said policy is to be determined.
(e) The maximum rate for each policy shall be determined at regular intervals at least once every (12) months, but not more than once every three (3) months. At the intervals specified in the policy:
(i) The rate may be increased as long as said increment, as determined under clause (c) of this subsection, raises the rate by not less than one-half percent (½ %) per annum.
(ii) The rate may be reduced provided that said decrease, as determined under clause (c) of this subsection, reduces the rate by not less than one-half percent (½ %) per annum.
(f) The insurer shall:
(i) Notify the policyholder, when a loan is granted based on the cash value, of the initial rate of interest on said loan;
(ii) notify the policyholder, with respect to premium loans, of the initial interest rate on the loan as soon as it is reasonably practical to do so after the initial loan has been underwritten. It will not be necessary to notify the policyholder when another premium loan is added, except as provided in paragraph (iii) of this clause;
(iii) send to the policyholders who have obtained loans, an adequate notice in advance of any rate increase, and
(iv) include in the above-mentioned notices the essence of the pertinent provisions in clauses (b) and (d) of this subsection.
(g) The policy loan value shall be determined according to the provisions of § 1366 of this title. No policy shall mature in a policy year as the sole result of a change in the interest rate during said policy year. The insurer shall maintain the coverage during said policy year up to the moment in which it would otherwise have been terminated if there had been no change during said policy year.
(h) The essence of the pertinent provisions of clauses (b) and (d) of this subsection shall be included in the policies to which they are applicable.
(i) For the purposes of this subsection:
(i) The interest rate in the case of policy loans allowed under this subsection includes the interest rate charged for the reinstatement of policy loans for the period during, and after, any maturity of a policy.
(ii) The term policy loan includes any premium loan granted under a policy to pay one or more premiums which, on maturity, had not been paid to the insurer.
(iii) The term “policyholder” includes the owner of the policy or the person designated to pay the premiums, as it arises from the insurer’s files.
(iv) The term “policy” includes certificates issued by a fraternal benevolent society and annuity contracts that provide for policy loans.
(j) No other statutory provision shall apply to the interest rates on policy loans, unless it is expressly and specifically applicable to said rates.
(k) The provisions of this subsection shall not apply to an insurance contract that has been underwritten before said subsection becomes effective.
(3) The policy shall provide that the granting of a loan that is not destined to pay premiums may be deferred for a term not greater than six (6) months after the application for the loan has been received by the insurer, and shall provide for the automatic premium loan.
History —Ins. Code, added as § 13.120 on Nov. 9, 2007, No. 165, § 1, eff. 90 days after Nov. 9, 2007.