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.