Definition of NAIC: model policy loan interest rate bill national association of insurance commissioners

bill that allows the insurance company to include a clause in its policy that permits the policyholder to make a policy loan at a variable interest rate on new policies. Under this clause, the following must be instituted by the insurance company: (1) interest rate cannot be changed more than four times each year; (2) at least once each year, an evaluation must be made of the requirement for any change in the nterest rate; (3) interest rate cannot be changed to that of a rate higher than Moody's Composite Yield on seasoned corporate bonds, which is in effect two months prior to the establishment of the new rate or to a rate higher than the interest rate being credited to the cash value plus 1%. The rate change calculation that is utilized is the decision of the insurance company. No change in the interest rate can be made unless the adjustment is for an increase of at least one-half of 1%. Should the interest rate charged on policy loans currently decrease to an amount at least equal to one-half of 1% of that rate currently being charged, then the variable loan rate must be lowered in turn. There remains no requirement for the insurance company to actually increase the interest rate or to use a variable interest rate; the sole use of fixed interest rates is still permissible.