CHAPTER 1110. INTEREST RATES ON CERTAIN POLICY LOANS

INSURANCE CODE

TITLE 7. LIFE INSURANCE AND ANNUITIES

SUBTITLE A. LIFE INSURANCE IN GENERAL

CHAPTER 1110. INTEREST RATES ON CERTAIN POLICY LOANS

Sec. 1110.001. DEFINITIONS. In this chapter:

(1) "Life insurance policy" includes:

(A) a benefit certificate issued by a fraternal benefit society;

or

(B) an annuity contract that provides for a policy loan.

(2) "Policy loan" includes any premium loan made under a life

insurance policy to pay one or more premiums not paid to the life

insurer when due.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.002. APPLICABILITY OF CHAPTER. This chapter applies

only to a life insurance policy issued on or after August 31,

1981.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.003. APPLICABILITY OF OTHER LAW. A law not included

in this chapter applies to interest rates on policy loans only if

that law is made specifically applicable to those rates.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.004. MAXIMUM INTEREST RATE ON POLICY LOANS. (a) In

this section, "published monthly average" means:

(1) Moody's Corporate Bond Yield Average--Monthly Average

Corporates as published by Moody's Investors Service, Inc., or a

successor to that corporation; or

(2) if the rate described by Subdivision (1) is no longer

published, a substantially similar average established by rule of

the commissioner.

(b) A life insurance policy must include a provision for an

interest rate on a policy loan that:

(1) does not exceed 10 percent a year; or

(2) is an adjustable maximum interest rate established from time

to time by the life insurer as permitted by law and does not

exceed the lesser of:

(A) 15 percent a year; or

(B) the greater of:

(i) the published monthly average for the calendar month that

ended two months before the date on which the rate is determined;

or

(ii) the rate used to compute the cash surrender values under

the life insurance policy during the applicable period plus one

percent per year.

(c) This section also applies to the interest rate charged, on

reinstatement of a policy loan, for the period during and after a

lapse of the life insurance policy.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.005. FREQUENCY OF ADJUSTABLE INTEREST RATE

DETERMINATION. A life insurer shall determine the adjustable

interest rate under Section 1110.004(b)(2) at regular intervals

at least once every 12 months but not more frequently than once

in any three-month period. At the intervals specified in the life

insurance policy, the insurer:

(1) may increase the rate charged when the interest rate

determined under Section 1110.004(b)(2) would result in a rate

increase of at least one-half of one percent per year; and

(2) shall reduce the rate charged when the interest rate

determined under Section 1110.004(b)(2) would result in a rate

decrease of at least one-half of one percent per year.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.006. INFORMATION TO BE INCLUDED IN POLICY. (a) A

life insurance policy must include the substance of the

provisions of Section 1110.004(b) that are applicable to the

policy.

(b) A life insurance policy that provides for an adjustable

interest rate under Section 1110.004(b)(2) must state the

frequency at which the rate is to be determined.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.007. NOTICE TO POLICYHOLDER. (a) In this section,

"policyholder" includes the owner of a life insurance policy or

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

the life insurer.

(b) For a cash loan on a life insurance policy, the life insurer

shall notify the policyholder of the initial interest rate on the

loan at the time the insurer makes the loan.

(c) For a premium loan on a life insurance policy, the life

insurer shall notify the policyholder of the initial interest

rate on the loan as soon as reasonably practical after making the

loan. Except as provided by Subsection (d), subsequent notice is

not required to be given when the insurer makes an additional

premium loan on the policy.

(d) At least 30 days before an increase in the interest rate on

a policy loan, the life insurer shall send a notice of the rate

increase to the policyholder.

(e) The life insurer shall include in a notice required by this

section the substance of the provisions of Section 1110.004(b)

applicable to the policy. For a policy loan with an adjustable

interest rate, the notice must state the frequency at which the

rate is to be determined.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.

Sec. 1110.008. LOAN VALUE OF POLICY; TERMINATION OF POLICY BASED

ON CHANGE IN INTEREST RATE. (a) The loan value of a life

insurance policy shall be determined in accordance with Section

1101.009.

(b) A life insurance policy may not be terminated in a policy

year solely as the result of a change in the policy loan interest

rate during that policy year, and the life insurer shall maintain

coverage during that policy year until the time at which coverage

would otherwise have terminated if there had been no change in

the interest rate.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003.