26-16-108. Policy loans.

(a) As used in this section:

(i) "Policy" includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans;

(ii) "Policyholder" includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer;

(iii) "Policy loan" includes any premium loan made under a policy to pay one (1) or more premiums not paid to the life insurer when due;

(iv) "Published monthly average" means:

(A) Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc. or any successor; or

(B) If the Moody's Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average established by regulation of the commissioner.

(v) "The rate of interest on policy loans" authorized under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.

(b) After three (3) full years premiums are paid and after the policy has a cash surrender value and while no premium is in default beyond the grace period, the insurer will advance, on proper assignment or pledge of the policy and on the sole security of the policy, at a specified rate of interest, an amount equal to or at the option of the entitled party less than the policy's loan value. The policy loan value shall be at least equal to the cash surrender value at the end of the then current policy year, provided that the insurer may deduct from the loan value or from the loan proceeds, any existing indebtedness not already deducted in determining the cash surrender value including any interest then accrued but not due, any unpaid balance of the premium for the current policy year and interest on the loan to the end of the current policy year.

(c) The policy may also provide that:

(i) If interest on any indebtedness is not paid when due, it shall be added to the existing indebtedness and shall bear interest at the same rate; and

(ii) If the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the policy loan value, the policy terminates and is void after notice is mailed by the insurer within at least thirty (30) days to the last address of record with the insurer of the insured or other policy owner and of any assignee of record at the insurer's home office.

(d) The policy shall reserve the insurer's right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six (6) months after application. The provision shall also contain a table indicating in writing the loan values each year during the first twenty (20) years of the policy or during the term of the policy, whichever is shorter.

(e) The policy, at the insurer's option, may provide for automatic premium loan.

(f) This section does not apply to:

(i) Term policies;

(ii) Term insurance benefits provided by rider or supplemental policy provisions; or

(iii) Industrial life insurance policies.

(g) Policies issued on or after July 1, 1983 shall provide for policy loan interest rates as follows:

(i) A provision permitting a maximum interest rate of not more than eight percent (8%) per year; or

(ii) A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as authorized by law.

(h) The rate of interest charged on a policy loan made under paragraph (g)(ii) of this section shall not exceed the higher of the published monthly average for the calendar month ending two (2) months prior to the date on which the rate is determined or the rate used to compute the cash surrender values under the policy during the applicable period plus one percent (1%) per year.

(j) The policy shall contain a provision stating the frequency at which the rate is to be determined for that policy. The maximum rate for each policy shall be determined at regular intervals at least once every twelve (12) months but not more than once every three (3) months. At the intervals specified in the policy:

(i) The rate charged may be increased if the increase determined under subsection (h) of this section increases the rate by one-half percent (1/2%) or more per year; and

(ii) The rate charged shall be reduced if the reduction determined under subsection (h) of this section decreases the rate by one-half percent (1/2%) or more per year.

(k) The life insurer shall:

(i) Notify the policyholder of the initial rate of interest on the loan at the time a cash loan is made;

(ii) Notify the policyholder of the initial rate of interest on a premium loan as soon as reasonably practical after making the initial loan. No notice is required if an additional premium loan is added except as provided in paragraph (iii) of this subsection;

(iii) Provide policyholders having loans reasonable advance notice of any rate increase; and

(iv) Include in notices to policyholders required by this subsection the substance of the pertinent provisions of subsections (g) and (j) of this section.

(m) The loan value of the policy shall be determined in accordance with W.S. 26-16-202(a)(vi). No policy shall terminate in a policy year as the sole result of a change in the interest rate during that policy year. 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 interest rate change during that policy year.

(n) The substance of the pertinent provisions of subsections (g) and (j) of this section shall be stated within the policies to which they apply.

(o) No other provision of law shall apply to policy loan interest rates unless made specifically applicable to such rates.