Code of Virginia
Chapter 33 - Life Insurance Policies
§ 38.2-3308. Policy loans

A. Each individual life insurance policy shall contain a provision that after the policy has been in force three policy years the insurer shall at any time, while the policy is in force other than as extended term insurance, advance, on proper assignment or pledge of the policy and on the sole security of the policy, a sum equal to or, at the option of the policyowner, less than the amount required by § 38.2-3218, under the conditions specified by that section.
B. Each individual life insurance policy issued after July 1, 1975, and prior to July 1, 1981, shall contain only one of the following policy loan interest rate provisions:
1. A provision that a policy loan shall bear interest at a specified rate not exceeding eight percent per year; or
2. A provision that all loans under the policy, including outstanding loans, shall bear interest at a variable rate not exceeding eight percent per year, specified from time to time by the insurer. The effective date of any increase in the variable rate shall be not less than one year after the effective date of the establishment of the previous rate. If the interest rate is increased, the amount of the increase shall not exceed one percent per year. The variable rate may be decreased without restriction as to amount or frequency. With respect to policies providing for a variable rate, the insurer shall give notice of:
a. The variable rate currently effective when a loan is made and when notification of interest due is furnished;
b. Any increase in the variable rate at least thirty days before the effective date for any loans outstanding forty days before that date; and
c. The increase at the time a loan is made for any loans made during the forty days before the effective date of the increase. The notice shall be given as directed by the policyowner and any assignee as shown on the records of the insurer at its home office.
C. 1. Each individual life insurance policy issued after July 1, 1981, shall contain a policy loan interest rate provision permitting either:
a. A maximum fixed interest rate of not more than eight percent per year; or
b. An adjustable maximum interest rate established from time to time by the insurer as permitted by law.
2. The interest rate charged on a policy loan made under subdivision 1 b of this subsection shall not exceed the greater of:
a. The Published Monthly Average for the calendar month ending two months before the date on which the rate is determined; or
b. The rate used to compute the cash surrender values under the policy during the applicable period plus one percent per year.
3. For the purposes of this subsection, the "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 thereto; or
b. If the Moody's Corporate Bond Yield Average -- Monthly Average Corporates is no longer published, a substantially similar average, established by regulation issued by the Commission.
4. If the maximum interest rate is determined pursuant to subdivision 1 b of this subsection, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.
5. The maximum interest rate for each policy shall be determined at regular intervals at least once every twelve months, but not more frequently than once every three months. At the intervals specified in the policy:
a. The rate being charged may be increased whenever the increase as determined under subdivision 2 of this subsection would increase that rate by one-half percent or more per year;
b. The rate being charged shall be reduced whenever the reduction as determined under subdivision 2 of this subsection would decrease that rate by one-half percent or more per year.
6. The insurer shall:
a. Notify the policyowner at the time a cash loan is made of the initial interest rate;
b. Notify the policyowner of the initial interest rates on a premium loan as soon as it is reasonably practical to do so after making the loan. Notice need not be given to the policyowner when a further premium loan is added, except as provided in subdivision 6 c below;
c. Send reasonable advance notice of any increase in the rates to policyowners with loans; and
d. Include the substance of the pertinent provisions of subdivisions 1 and 4 of this subsection in the notices required above.
7. No policy shall terminate in a policy year as the sole result of a 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.
8. The substance of the pertinent provisions of subdivisions 1 and 4 of this subsection shall be set forth in the policies to which they apply.
9. For the purposes of this section:
a. The interest rate on policy loans permitted 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. The term "policy loan" includes any premium loan made under a policy to pay one or more premiums that were not paid to the insurer as they fell due.
c. The term "policy" includes certificates issued by a fraternal benefit society and annuity contracts that provide for policy loans.
10. No other provision of law, including Chapter 3 (§ 6.2-300 et seq.) of Title 6.2, shall apply to policy loan interest rates unless made specifically applicable to the rates.
D. The insurer may deduct from the loan value any indebtedness not already deducted in determining the value of any unpaid balance of the premium for the current policy year and any interest that may be allowable on the loan to the end of the current policy year. The policy may further provide that if the interest on the loan is not paid when due, it shall be added to the existing loan and shall bear interest at the same rate.
E. A policy loan provision shall not be required in term insurance policies.
1981, c. 46, § 38.1-397.1; 1986, c. 562.

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