Mich. Admin. Code R. 500.851 - Variable life insurance policy; nonforfeiture, partial withdrawal, policy loan, and partial surrender provisions

Rule 11. Every variable life insurance policy delivered or issued for delivery in this state shall contain all of the following provisions:

(a) A provision for nonforfeiture insurance benefits, so that at least 1 such benefit is offered on a fixed basis from the due date of the premium in default. Variable extended term insurance shall not be offered. A given nonforfeiture option need not be offered on both a fixed and a variable basis. The insurer may establish a reasonable minimum cash surrender value below which any nonforfeiture insurance options will not be available.

(b) A provision for policy loans after the policy has been in force for 3 full years. Such provision shall be not less favorable to the policyholder than any of the following provisions:

(i) The policyholder may borrow at least 75% of the cash surrender value.

(ii) The amount borrowed shall bear interest at a rate not to exceed the rate charged on comparable fixed benefit policies.

(iii) Any indebtedness shall be deducted from the proceeds payable on death.

(iv) Any indebtedness shall be deducted from the cash surrender value upon surrender or in determining any nonforfeiture benefit.

(v) For scheduled premium policies, when the indebtedness exceeds the cash surrender value, the insurer shall give notice of intent to cancel the policy if the excess indebtedness is not repaid within 31 days after the date of mailing of such notice, by registered mail, return receipt requested, to the last known address of the policyholder.

(vi) For flexible premium policies, when the total charges authorized by the policy that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay such charges, a report shall be sent to the policyholder containing the information specified by R 500.865(d).

(vii) The policy may provide that if, at any time, so long as premiums are duly paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder may increase such variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding 110% of the corresponding increase in cash value and by furnishing such evidence of insurability as the insurer may request.

(viii) The policy may specify a reasonable minimum amount which may be borrowed at any time, but such minimum shall not apply to any automatic premium loan provision.

(ix) A policy loan provision is not required if the policy is under the extended insurance nonforfeiture option.

(c) In addition to the provisions specified in subdivisions (a) and (b) of this rule, the policy may contain a partial surrender provision; however, any such provision shall provide that the policyholder may request part of the cash value and both the variable and minimum death benefits shall be reduced in proportion to the percentage of the cash value received by the policyholder and the premium for the remaining amount of insurance shall also be reduced to the appropriate rates for the reduced amount of insurance. The policy may provide that a partial surrender provision shall not require the insurer to reduce the amount of the minimum death benefit to less than the lowest amount of minimum death benefit which would have been issued to the insured under the insurance plans of the insurer at the time the policy was issued. The policy shall clearly provide that the policyholder has the option of electing to exercise the cash value privileges of the policy loan provision rather than the partial surrender or partial withdrawal provision.

(d) All policy loan, partial withdrawal, or partial surrender provisions shall be constructed so that variable life insurance policyholders who have not exercised such provision are not disadvantaged by the exercise thereof.

(e) Monies paid to the policyholders upon the exercise of any policy loan, partial withdrawal, or partial surrender provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment, except that a stock insurer may provide the monies for policy loans from the general account.

Notes

Mich. Admin. Code R. 500.851

1979 AC; 1988 AACS