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Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language


  

                         Laws of Minnesota 1983 

                        CHAPTER 292--H.F.No. 250
           An act relating to insurance; requiring automobile 
          insurance policy option of safety glass coverage 
          without a deductible; regulating interest rates on 
          life insurance policy loans; establishing written 
          pricing and dividend policies in certain circumstances;
          prescribing penalties; amending Minnesota Statutes 
          1982, section 61A.03; proposing new law coded in 
          Minnesota Statutes, chapters 65B and 72A. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1982, section 61A.03, is 
amended to read:  
    61A.03 [NECESSARY REQUIRED PROVISIONS; LIFE INSURANCE 
POLICIES.] 
    Subdivision 1.  [GENERALLY.] No policy of life insurance 
shall may be issued in this state or be issued by a life 
insurance company organized under the laws of this state unless 
the same it contains the following provisions: 
    (1) (a) [PREMIUM.] A provision that all premiums shall be 
are payable in advance either at the home office of the company, 
or to an agent of the company, upon delivery of a receipt signed 
by one or more officers named in the policy and counter-signed 
by the agent, but any a policy may contain a provision that the 
policy itself shall be is a receipt for the first premium; 
    (2) (b) [GRACE PERIOD.] A provision for a grace of one 
month grace period for the payment of every premium after the 
first, which may be subject to an interest charge, during which 
month the insurance shall will continue in force, which.  The 
provision may subject the late payment to a finance charge and 
contain a stipulation that if the insured dies during the month 
of grace period, the overdue premium will be deducted in any 
settlement under the policy; 
    (3) (c) [ENTIRE CONTRACT.] A provision that the policy 
constitutes the entire contract between the parties and is 
incontestable after it is has been in force during the lifetime 
of the insured for two years from its date, except for 
non-payment of premiums and except for violations of the 
conditions of the policy relating to naval and military services 
in time of war and,; that at the option of the company, 
provisions relative to benefits in the event of total and 
permanent disability and provisions which grant additional 
insurance specifically against death by accident, may be 
excepted,; and that a special form of policy may be issued on 
the life of a person employed in an occupation classed 
classified by the company as extra hazardous or as leading to 
hazardous employment, which provides that service in certain 
designated occupations may reduce the company's liability under 
the policy to a certain designated amount not less than the full 
policy reserve; 
    (4) (d) [REPRESENTATIONS AND WARRANTIES.] A provision that, 
in the absence of fraud, all statements made by the insured 
shall be deemed are representations and not warranties, and that 
no such statement shall avoid voids the policy unless it is 
contained in a written application, and a copy of the 
application is endorsed upon or attached to the policy when 
issued; 
    (5) (e) [MISSTATEMENT OF AGE.] A provision that if the age 
of the insured is understated, the amount payable under the 
policy shall will be such as the amount the premium would have 
purchased at the correct age; 
    (6) (f) [DIVIDENDS ON PARTICIPATING POLICIES.] A provision 
that the policy shall will participate in the surplus of the 
company and that, beginning not later than the end of the third 
policy year, the company will, annually, determine and account 
for the portion of the divisible surplus accruing on the policy, 
and that the owner of the policy shall have has the right, each 
year after the fifth, to have the current dividend arising from 
such the participation paid in cash, and.  If the policy shall 
provide provides other dividend options, it shall must specify 
which option shall be is effective if the owner of the policy 
shall does not elect any an option, which.  The provision 
may stipulate that condition any dividends payable during the 
first five years of such the policy shall be conditioned upon 
the payment of the next ensuing annual premium;.  This provision 
shall is not be required in non-participating policies, nor in 
policies issued on under-average lives, nor or in insurance in 
exchange for lapsed or surrendered policies; 
    (7) (g) [POLICY LOANS.] A provision (1) that after three 
full years years' premiums have been paid, the company at any 
time while the policy is in force, will advance, on proper 
assignment of the policy, and on the sole security thereof, at a 
specified rate of interest, not to exceed eight percent per 
annum, or at an adjustable rate of interest as otherwise 
provided for in this section, a sum equal to, or, at the option 
of the owner of the policy, less than the loan value thereof. 
Such; (2) that the loan value shall be is the cash surrender 
value thereof at the end of the current policy year, and the 
policy shall provide; (3) that such the loan, except when 
unless made to pay premiums, may be deferred for not exceeding 
more than six months after the application therefor for it is 
made; it shall be further stipulated in the policy (4) that the 
company will deduct from such the loan value any existing 
indebtedness on the policy and any unpaid balance of the premium 
for current policy year, and may collect interest in advance on 
the loan to the end of the current policy year, and; (5) that 
the failure to repay any such an advance or to pay interest 
shall does not void the policy unless the total indebtedness 
thereon to the company shall equal equals or exceed exceeds 
such the loan value at the time of such the failure, nor until 
one month after notice shall have has been mailed by the company 
to the last known address of the insured and of the assignee of 
record at the home office of the company; and (6) that no 
condition other than as herein those provided shall in this 
section will be exacted as a prerequisite to any such an advance 
; but.  This provision shall is not be required in term 
insurance. 
    (8) (h) [REINSTATEMENT.] A provision that if, in event of 
default in premium payments, the nonforfeiture value of the 
policy shall be is applied to the purchase of other insurance, 
and if such that insurance shall be is in force and the original 
policy shall has not have been surrendered to the company and 
canceled, the policy may be reinstated within three years from 
such after the default, upon evidence of insurability 
satisfactory to the company, and payment of arrears of premiums, 
with interest; 
    (9) (i) [PAYMENT OF CLAIMS.] A provision that, when a 
policy becomes a claim by the death of the insured, settlement 
shall will be made upon within two months after receipt of due 
proof of death, or not later than two months after receipt of 
such proof; 
    (10) (j) [SETTLEMENT OPTION.] A table showing the amount of 
installments in which the policy may provide its proceeds may be 
payable; 
    (11) (k) [DESCRIPTION OF POLICY.] A title on the face and 
on the back of the policy briefly and correctly describing the 
policy in bold letters the same, and so specifying stating its 
general character, dividend periods, and other particulars, so 
that the holder will not be able to mistake the nature and scope 
of the contract. 
    Any of the foregoing provisions or portions thereof 
relating to premiums not applicable to single premium policies 
shall must not be incorporated therein.  
    Subd. 2.  [INTEREST RATES ON POLICY LOANS.] (a) A life 
insurance policy which provides for policy loans must contain a 
provision concerning maximum policy loan interest rates as 
follows:  
    (1) a provision permitting a maximum interest rate of not 
more than eight percent per annum; or 
    (2) a provision permitting an adjustable maximum interest 
rate established from time to time by the life insurer as 
permitted by this subdivision.  
    (b) No life insurer may issue policies with a policy loan 
provision providing for an adjustable maximum interest rate 
under paragraph (a), clause (2), unless the insurer also makes 
available policies with a policy loan provision providing for a 
fixed rate of interest under paragraph (a), clause (1).  
    (c) The rate of interest charged on a policy loan made 
under paragraph (a), clause (2), may not exceed the higher of 
the following:  
    (1) the rate used to compute the cash surrender values 
under the policy during the applicable period plus one percent 
per annum; or 
    (2) the monthly average of the composite yield on seasoned 
corporate bonds as published by Moody's Investors Service, 
Incorporated, or any successor thereto, for the calendar month 
ending two months before the date on which the rate is 
determined.  If the monthly average is no longer published, the 
commissioner shall substitute a substantially similar average by 
rule.  
    (d) If the maximum rate of interest is determined pursuant 
to paragraph (a), clause (2), the policy must contain a 
provision setting forth the frequency at which the rate is to be 
determined for that policy.  
    (e) The maximum rate referred to in paragraph (d) 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:  
    (1) The rate being charged may be increased whenever the 
increase as determined under paragraph (c) would increase that 
rate by one-half percent or more per annum; and 
    (2) The rate being charged must be reduced whenever the 
reduction as determined under paragraph (c) would decrease that 
rate by one-half percent or more per annum.  
    (f) The life insurer shall:  
    (1) notify the policyholder at the time a policy loan, 
other than a premium loan, is made, of the initial rate of 
interest on the loan, that the interest rate on the loan is 
adjustable and that the policyholder will be notified of any 
increase in the interest rate;  
    (2) 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. 
Notice need not be given to the policyholder when a further 
premium loan is added, except as provided in clause (3);  
    (3) send reasonable advance notice of any increase in the 
rate to the policyholder with loans; and 
    (4) include in the notices required by this paragraph the 
substance of the pertinent provisions of paragraphs (a) and (d), 
a summary of the plan required by paragraph (h), and the effect 
of the policy loan on the policyholder's net cost of insurance 
per $1,000 of coverage based on that plan.  
    (g) The loan value of the policy must be determined in a 
manner consistent with section 61A.24 or 61A.245, but no policy 
may terminate 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.  
    (h) Prior to offering insurance policies with an adjustable 
policy loan interest rate or offering to add a provision for an 
adjustable policy loan interest rate to existing policyholders, 
the insurer shall file a written plan setting forth the manner 
in which policyholders will receive a reasonable benefit in the 
form of price reductions, increased amounts of insurance, or 
increased dividends from the increased earnings of the insurer 
resulting from the use of the adjustable rate and, if 
applicable, the effect of a policy loan on dividends and 
dividend rates.  A summary of this plan must be made available 
upon request to each policyholder and must be provided to each 
applicant for a policy before the initial premium is received.  
    (i) The pertinent provisions of paragraphs (a) and (e) must 
be set forth in substance in the policies to which they apply.  
    (j) For the purposes of this subdivision:  
    (1) The rate of interest on policy loans permitted under 
this subdivision includes the interest rate charged on 
reinstatement of policy loans for the period during and after 
any lapse of a policy.  
     (2) 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.  
     (3) 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.  
    (4) The term "policy" includes certificates issued by a 
fraternal benefit society and annuity contracts which provide 
for policy loans.  
    Subd. 3.  [APPLICABILITY TO POLICIES.] The provisions of 
subdivision 2 do not apply to any insurance policy issued before 
the effective date of this act unless the insurer provides the 
policyholder with a summary of the plan required by subdivision 
2, paragraph (h), and thereafter the policyholder agrees in 
writing to the applicability of those provisions.  Upon election 
of policies providing adjustable policy loan interest rates, the 
cash surrender values of any policies subject to the provisions 
of this section shall be determined in accordance with section 
61A.24 or 61A.245 at the time of the election.  The provisions 
of subdivision 2 shall not apply to any insurance policy that 
the commissioner determines provides insufficient benefits to 
the policyholder to justify loan interest rates in excess of 
those provided in subdivision 1.  
    Subd. 4.  [NONAPPLICATION OF USURY.] Neither section 334.01 
nor any other law of this state which regulates rates of 
interest applies to policy loans governed by this section.  
    Subd. 5.  [RULES.] The commissioner may adopt rules 
pursuant to chapter 14 to further implement and administer the 
provisions of this section.  
    Sec. 2.  [65B.134] [COMPREHENSIVE COVERAGE; GLASS 
BREAKAGE.] 
    Any policy of automobile insurance, as defined in section 
65B.14, subdivision 2, providing comprehensive coverage, whether 
designated as such or included in a policy providing broader 
coverage, must provide at the option of the insured complete 
coverage for repair or replacement of all damaged safety glass 
without regard to any deductible or minimum amount.  
    Sec. 3.  [72A.135] [FAILURE TO FOLLOW DIVIDEND AND PRICING 
POLICY; PENALTIES.] 
    An insurer failing to file and adhere to the plan required 
by section 61A.03, subdivision 2, paragraph (h), is subject to a 
civil penalty of not more than $5,000 for each violation.  
    Sec. 4.  [EFFECTIVE DATE.] 
    Section 2 is effective September 1, 1983, and applies to 
all policies of automobile insurance issued or renewed after 
that date.  Sections 1 and 3 are effective January 1, 1984. 
    Approved June 7, 1983