§ 3731. Standard provisions required
No policy of life insurance, other than group and pure endowments with or without
return of premiums or of premiums and interest, shall be delivered or issued for delivery
in this State unless it contains in substance all of the applicable provisions required
by this subchapter or corresponding provisions that in the opinion of the Commissioner
are more favorable to the policyholder. This subchapter shall not apply to any provision
of a life insurance policy, or contract supplemental thereto, relating to disability
benefits or to additional benefits in the event of death by accident or accidental
means; and any of such provisions or portions thereof not applicable to single premium
or nonparticipating or term policies shall to that extent not be incorporated therein.
(1) Payment of premiums. There shall be a provision relating to the time and place of payment of premiums.
(2) Grace period. There shall be a provision that a grace period of 30 days, or, at the option of the
insurer, of one month of not less than 30 days, or of four weeks in the case of industrial
life insurance policies the premiums for which are payable more frequently than monthly,
shall be allowed within which the payment of any premium after the first may be made,
during which period of grace the policy shall continue in full force; but if a claim
arises under the policy during such period of grace, the amount of any premium due
or overdue may be deducted from the policy proceeds.
(3) Entire contract. There shall be a provision that, except as otherwise expressly provided by law, the
policy and the application therefor, if a copy of such application is endorsed upon
or attached to the policy when issued, shall constitute the entire contract between
the parties, and that all statements contained in the application shall, in the absence
of fraud, be deemed representations and not warranties.
(4) Incontestability. There shall be a provision that the policy (exclusive of provisions relating to disability
benefits or to additional benefits in the event of death by accident or accidental
means) shall be incontestable, except for nonpayment of premiums, after it has been
in force during the lifetime of the insured for a period of two years from its date
of issue.
(5) Misstatement of age. There shall be a provision that if the age of the insured or of any other person whose
age is considered in determining the premium or benefit has been misstated, any amount
payable or benefit accruing under the policy shall be such as the premium would have
purchased at the correct age or ages.
(6) Dividends.
(A) There shall be a provision in participating policies that, beginning not later than
the end of the third policy year, the insurer shall annually ascertain and apportion
the divisible surplus, if any, that will accrue on the policy anniversary or other
dividend date specified in the policy, provided the policy is in force and all premiums
to that date are paid. Except as hereinafter provided, any dividend becoming payable
shall at the option of the party entitled to elect such option be either:
(i) Payable in cash.
(ii) Applied to any one of such other dividend options as may be provided by the policy.
If any such other dividend options are provided, the policy shall further state which
option shall be automatically effective if such party shall not have elected some
other option. If the policy specifies a period within which such other dividend option
may be elected, such period shall be not less than 30 days following the date on which
such dividend is due and payable. The annually apportioned dividend shall be deemed
to be payable in cash within the meaning of subdivision (i) of this subdivision (6)(A)
even though the policy provides that payment of such dividend is to be deferred for
a specified period, provided such period does not exceed six years from the date of
apportionment and that interest will be added to such dividend at a specified rate,
and provided, further, that upon maturity, surrender, or other expiry of the policy,
any such dividend and interest thereon shall not be forfeited to the insurer.
(B) In participating industrial life insurance policies, in lieu of the provisions required
in subdivision (A)(i) of this subdivision (6), there shall be a provision that, beginning
not later than the end of the fifth policy year, the policy shall participate annually
in the divisible surplus, if any, in the manner set forth in the policy.
(C) If a participating policy provides that the benefit under any paid-up nonforfeiture
provision is to be participating, it may provide that any divisible surplus becoming
payable or apportioned while the insurance is in force under such nonforfeiture provision
shall be applied in the manner set forth in the policy.
(7) Policy loans.
(A) There shall be a provision that after three full years’ premiums have been paid and
after the policy has a cash surrender value and while no premium is in default beyond
the grace period for payment, the insurer will advance, on the sole security thereof,
an amount equal to or, at the option of the party entitled thereto, less than the
loan value of the policy at a policy loan interest rate with respect to which a policy
shall contain one of the following policy loan interest rate provisions.
(i) There may be a provision that a policy loan shall bear interest at a specified rate
not exceeding eight percent per annum.
(ii) There may be a provision that all loans under a policy issued prior to April 9, 1982,
including outstanding loans, shall bear interest at a variable rate not exceeding
eight percent per annum, specified from time to time by the insurer. The effective
date of any change 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 annum. With
respect to policies providing for a variable rate under this subdivision, the insurer
shall:
(I) When a loan is made and when notification of interest due is furnished, give notice
of the variable rate currently effective.
(II) As to any loans outstanding 40 days before the effective date of any increase in the
variable rate, give notice of any such increase at least 30 days before the effective
date.
(III) As to any loans made during the 40 days before the effective date of the increase,
give notice of the increase when the loan is made. The notice shall be given to the
policy owner and any assignee as shown on the records of the insurer at its home office.
(iii) There may be in policies issued on or after April 9, 1982, a provision permitting
an adjustable maximum interest rate established from time to time by the life insurer
as permitted by law.
(B) The rate of interest charged on a policy loan made under subdivision (A)(iii) of this
subdivision (7) shall not exceed the higher of the following:
(i) the Published Monthly Average for the calendar month ending two months before the
date on which the rate is determined; or
(ii) the rate used to compute the cash surrender values under the policy during the applicable
period plus one percent per annum.
(C) If the maximum rate of interest is determined pursuant to subdivision (A)(iii) of
this subdivision (7), the policy shall contain a provision setting forth the frequency
at which the rate is to be determined for that policy.
(D) The maximum rate for each policy providing an adjustable interest rate pursuant to
subdivision (A)(iii) of this subdivision (7) must be determined at regular intervals
at least once every 12 months, but not more frequently than once in any three month
period. At the intervals specified in the policy:
(i) the rate being charged may be increased whenever such increase as determined under
subdivision (B) of this subdivision (7) would increase that rate by one-half percent
or more per annum;
(ii) the rate being charged must be reduced whenever such reduction as determined under
subdivision (B) of this subdivision (7) would decrease that rate by one-half percent
or more per annum.
(E) The life insurer, with respect to any policy providing an adjustable interest rate
pursuant to subdivision (A)(iii) of this subdivision (7), shall:
(i) notify the policyholder at the time a cash loan is made of the initial rate of interest
on the loan;
(ii) notify the policyholder with respect to premium loans of the initial rate of interest
on the loan as soon as it is reasonably practical to do so after making the initial
loan, but notice need not be given to the policyholder when a further premium loan
is added, except as provided in subdivision (iii) of this subdivision (7)(E);
(iii) send to policyholders with loans reasonable advance notice of any increase in the
rate; and
(iv) include in the notices required above the substance of the pertinent provisions of
subdivisions (A) and (C) of this subdivision (7).
(F) No policy providing for an adjustable interest rate pursuant to subdivision (A)(iii)
of this subdivision (7) shall terminate in a policy year as the sole result of a change
in the interest rate during that policy year, and 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 during that policy year.
(G) The substance of the pertinent provisions of subdivisions (A) and (C) of this subdivision
(7) shall be set forth in the policies to which they apply.
(H) For purposes of this section:
(i) the rate of interest 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;
(ii) the term “policy loan” includes any premium loan made under a policy to pay one or
more premiums that were not paid to the life insurer as they fell due;
(iii) the term “policyholder” includes the owner of the policy or the person designated
to pay premiums as shown on the records of the life insurer;
(iv) the term “policy” includes certificates issued by a fraternal benefit society and
annuity contracts that provide for policy loans;
(v) “Published Monthly Average” means:
(I) Moody’s Corporate Bond Yield Average—Monthly Average Corporates as published by Moody’s
Investors Service, Inc. or any successor thereto; or
(II) in the event that Moody’s Corporate Bond Yield Average—Monthly Average Corporates
is no longer published, a substantially similar average, established by regulation
issued by the Commissioner.
(I) No other provision of law shall apply to policy loan interest rates unless made specifically
applicable to such rates.
(J) None of the above provisions shall prevent an insurer from charging less than the
rate of interest specified therein. The loan value of the policy shall be at least
equal to the cash surrender value at the end of the then current policy year, and
the insurer may deduct, either from such loan value or from the proceeds of the loan,
any existing indebtedness not already deducted in determining such cash surrender
value, including any interest then accrued but not due, and unpaid balance of the
premium for the current policy year, and interest that may be allowable on the loan
to the end of the current policy year. The policy may also provide that if interest
on any indebtedness is not paid when due it shall then be added to the existing indebtedness
and shall bear interest at the same rate, and that if and when the total indebtedness
on the policy, including interest due or accrued, equals or exceeds the amount of
the loan value thereof, then the policy shall, except as provided in subdivision (F)
of this subdivision (7), terminate and become void, but not until at least 30 days’
notice has been mailed by the insurer 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. 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.
(K) This subdivision shall not apply to term policies, or to term insurance benefits provided
by rider or supplemental policy provisions or to industrial life insurance policies.
(8) Table of installments. In case the policy provides that the proceeds may be payable in installments that
are determinable at issue of the policy, there shall be a table showing the amounts
of the guaranteed installments.
(9) Reinstatement. There shall be a provision that unless:
(A) the policy has been surrendered for its cash surrender value; or
(B) its cash surrender value has been exhausted; or
(C) the paid-up term insurance, if any, has expired; the policy will be reinstated at
any time within three years (or two years in the case of industrial life insurance
policies) from the date of premium default upon written application therefor, the
production of evidence of insurability satisfactory to the insurer, the payment of
all premiums in arrears, with interest at a rate not exceeding six percent per annum,
and the payment or reinstatement of any other indebtedness to the insurer upon the
policy, with interest compounded annually at the rate set forth in the policy for
policy loan interest.
(10) Payment of claims. There shall be a provision that when the benefits under the policy shall become payable
by reason of the death of the insured, settlement shall be made upon receipt of due
proof of death and, at the insurer’s option, surrender of the policy and/or proof
of the interest of the claimant. If an insurer shall specify a particular period prior
to the expiration of which settlement shall be made, such period shall not exceed
30 days from the receipt of such proofs.
(11) Beneficiary industrial policies. An industrial life insurance policy shall have the name of the beneficiary designated
thereon or in the application or other form if attached to the policy, with a reservation
of the right to designate or change the beneficiary after the issuance of the policy,
unless such beneficiary be irrevocably designated. The policy may also provide that
no designation or change of beneficiary shall be binding on the insurer until endorsed
on the policy by the insurer, and that the insurer may refuse to endorse the name
of any proposed beneficiary who does not appear to the insurer to have an insurable
interest in the life of the insured. The policy may also provide that if the beneficiary
designated in the policy does not make a claim under the policy or does not surrender
the policy with due proof of death within the period stated in the policy, which shall
not be less than 30 days after the death of the insured, or if the beneficiary is
the estate of the insured, or is a minor, or dies before the insured, or is not legally
competent to give a valid release, then the insurer may make any payment thereunder
to the executor or administrator of the insured, or to any relative of the insured
by blood or legal adoption or connection by civil marriage, or to any person appearing
to the insurer to be equitably entitled thereto by reason of having been named beneficiary,
or by reason of having incurred expense for the maintenance, medical attention or
burial of the insured. The policy may also include a similar provision applicable
to any other payment due under the policy.
(12) Title. There shall be a title on the policy, briefly describing the same. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, §§ 1-13); amended 1977, No. 45, § 1, eff. April 19, 1977; 1981, No. 144 (Adj. Sess.), eff. April 9, 1982; 2009, No. 3, § 12a, eff. Sept. 1, 2009; 2019, No. 103 (Adj. Sess.), § 18.)