§ 3805. Debtor groups
The lives of a group of individuals may be insured under a policy issued to a creditor
or to the trustees of a fund established by one or more creditors, which creditor
or trustees shall be deemed the policyholder, to insure debtors of the creditor or
creditors subject to the following requirements:
(1) The debtors eligible for insurance under the policy shall be all of the debtors of
the creditor or creditors or all of any class or classes thereof determined by conditions
pertaining to the indebtedness or to the purchase giving rise to the indebtedness.
The policy may provide that the term “debtors” shall include the debtors of one or
more subsidiary corporations, and the debtors of one or more affiliated corporations,
proprietors, or partnerships if the business of the policyholder and of such affiliated
corporations, proprietors, or partnerships, is under common control through stock
ownership, contract, or otherwise.
(2) The premium for the policy shall be paid by the policyholder, either from the creditor’s
or creditors’ funds, or from charges collected from the insured debtors, or from both.
A policy on which part or all of the premium is to be derived from the collection
from the insured debtors of identifiable charges not required of uninsured debtors
shall not include, in the class or classes of debtors eligible for insurance, debtors
under obligations outstanding at its date of issue without evidence of individual
insurability unless at least 75 percent of the then eligible debtors elect to pay
the required charges. A policy on which no part of the premium is to be derived from
the collection of such identifiable charges must insure all eligible debtors, or all
except any as to whom evidence of individual insurability is not satisfactory to the
insurer.
(3) The policy may be issued only if the group of eligible debtors is then receiving new
entrants at the rate of at least 100 persons yearly, or may reasonably be expected
to receive at least 100 new entrants during the first policy year, and only if the
policy reserves to the insurer the right to require evidence of individual insurability
if less than 75 percent of the new entrants become insured. The policy may exclude
from the classes eligible for insurance classes of debtors determined by age.
(4) The amount of insurance on the life of any debtor shall at no time exceed the amount
owed to the creditor, or creditors or $70,000.00, whichever is less, except that the
amount of such insurance on the life of a debtor who has secured a debt by a mortgage
on real estate shall at no time exceed $140,000.00, or the amount owed, whichever
is less. Where the insurance is in connection with an educational or agricultural
credit transaction commitment, the amount owed by the debtor to any creditor may be
deemed to include the portion of the loan commitment that has not been advanced by
the creditor.
(5) The insurance shall be payable to the policyholder or creditor. Such payment shall
reduce or extinguish the unpaid indebtedness of the debtor to the extent of such payment. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 5); amended 1973, No. 222 (Adj. Sess.), § 3, eff. April 3, 1974; 1989, No. 249 (Adj. Sess.), § 2, eff. June 16, 1990; 2009, No. 42, § 10.)