Connecticut General Statutes
Chapter 700b - Life Insurance, Annuities, Burial Contracts and Life Settlements
Section 38a-444. (Formerly Sec. 38-147b). - Life insurance policy loans. Interest rate allowable.

(a) For purposes of this section: (1) “Policy” means all contracts of life insurance which provide for policy loans, certificates insuring persons against loss of life issued by a fraternal benefit society and annuity contracts which provide for such loans; (2) “policy loan” means a loan to a policyholder, under the provisions of an insurance contract, that is secured by the cash surrender value or collateral assignment of the related policy or contract. “Policy loan” includes: (A) Cash loans, including loans resulting from early payment benefits or accelerated payment benefits, on contracts when the terms of the contract specify that such payments are policy loans secured by the policy, and (B) automatic premium loans, which are loans made in accordance with policy provisions whereby delinquent premium payments are automatically paid from the cash value at the end of the established grace period for premium payments; (3) “policyholder” includes the owner of the policy or the person designated to pay premiums as shown in the records of the life insurer; (4) “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) in the event that Moody's Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average, established by the Insurance Commissioner in regulations the commissioner may adopt in accordance with the provisions of chapter 54; (5) the rate of interest permitted under this section on policy loans includes the rate of interest charged on reinstatement of policy loans for the period during and after any lapse of a policy.

(b) Policies issued on or after October 1, 1981, shall provide for loan interest rates as follows: (1) A provision permitting a maximum interest rate of not more than eight per cent per annum; or (2) a provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by this section.
(c) The rate of interest charged on a policy loan made under subdivision (2) of subsection (b) of this section shall not exceed the higher of the following: (1) The published monthly average for the calendar month ending two months before the date on which the rate is determined; or (2) the rate used to compute the cash surrender values under the policy during the applicable period plus one per cent per annum.
(d) If the maximum rate of interest is determined pursuant to subdivision (2) of subsection (b) of this section, the policy shall contain a provision specifying the frequency at which the rate is to be determined.
(e) The maximum 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: (1) The rate charged may be increased whenever the rate is one-half of one per cent or more per annum less than the maximum rate determined under subsection (c) of this section; (2) the rate charged shall be reduced whenever the rate is one-half of one per cent or more per annum greater than the maximum rate determined under subsection (c) of this section.
(f) The life insurer shall: (1) Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan; (2) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as is reasonably practicable after making the initial loan. Notice of the rate of interest need not be given to the policyholder when a further premium loan is added, except as provided in subdivision (3) of this subsection; (3) forward to the policyholder with an outstanding loan, reasonable advance notice of any increase in the rate; and (4) include in the notices required by this subsection, the substance of the provisions of subsections (b) and (d) of this section.
(g) 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 change.
(h) The provisions of this section shall not apply to any insurance contract issued before October 1, 1981, unless the policyholder agrees in writing to the applicability of such provisions.
(i) The provisions of sections 37-4, 37-5 and 37-6 shall not affect any loan made under subdivision (2) of subsection (b) of this section.
(P.A. 81-51; P.A. 00-30, S. 12, 14.)
History: Sec. 38-147b transferred to Sec. 38a-444 in 1991; P.A. 00-30 amended Subdiv. (a)(2) to redefine “policy loan”, and made technical changes in Subdiv. (a)(3) for purposes of gender neutrality, effective January 1, 2001.
See Ch. 700d re fraternal benefit societies.
See Sec. 38a-800 re fraternal agents.

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