20120820-1208. Policy loan on old policies
A. In the case of policies issued prior to the operative date of section 20 1231, there shall be a provision that after three full years premiums have been paid, the insurer at any time while the policy is in force will advance on proper assignment or pledge of the policy and on the sole security thereof at a specified rate of interest not to exceed six per cent per annum, an amount equal to, or at the option of the owner of the policy less than, the reserve at the end of the current policy year on the policy and on any dividend addition thereto, computed according to any mortality table, rate of interest and the method of valuation permitted by the provisions of this title, the policy specifying the mortality table and rate of interest adopted for computing such reserve, less an amount not more than two and one half per cent of the amount insured by the policy and of any dividend additions thereto, and that the insurer shall deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year. An insurer may, in lieu of the provisions permitted by this section for the deduction from a loan on the policy of an amount not more than two and one half per cent of the amount insured by the policy and of any dividend additions thereto, insert in the policy a provision that one fifth of the entire reserve may be deducted in case of a loan under the policy, or may provide therein that the deduction may be the two and one half per cent or the one fifth of the entire reserve at the option of the insurer. The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application therefor is made. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect.
B. The provision provided for in subsection A of this section shall not be required in term insurance, nor shall it apply to temporary insurance or pure endowment insurance, issued or granted in exchange for lapsed or surrendered policies.
C. In ascertaining the indebtedness due from policy loans, the interest, if not paid when due, shall be added to the principal of the loans and shall bear interest at the rate specified in the note or loan agreement. 201208