Use of policy as collateral in premium finance loan
Section 221. (a) Insurance carriers may inquire in the application for insurance whether the proposed owner intends to pay premiums with the assistance of financing from a lender that will use the policy as collateral to support the financing.
(b) If the premium finance loan provides funds which can be used for a purpose other than paying for the premiums, costs and expenses associated with obtaining and maintaining the life insurance policy and loan, the application shall be rejected as a violation of this chapter.
(c) The insurance carrier may disclose certain information to the applicant and the insured, either on the application or an amendment to the application to be completed not later than the delivery of the policy including, but not limited to, the following disclosure: ''If you have entered into a loan arrangement where the policy is used as collateral and the policy changes ownership at some point in the future in satisfaction of the loan, the following may be true:
(1) a change of ownership could lead to a stranger owning an interest in the insured's life;
(2) a change of ownership could, in the future, limit your ability to purchase future insurance on the insured's life because there is a limit on the amount of coverage insurers will issue on 1 life;
(3) should there be a change of ownership and you wish to obtain more insurance coverage on the insured's life in the future, the insured's higher issue age, a change in health status and other factors may reduce the ability to obtain coverage or may result in significantly higher premiums;
(4) you should consult a professional tax advisor, since a change in ownership in satisfaction of the loan may result in tax consequences to the owner, depending on the structure of the loan.''
(d) The insurance carrier may require certifications from the applicant or the insured, including the following certified statements:
''(1) I have not entered into any agreement or arrangement providing for the future sale of this life insurance policy;
(2) My loan arrangement for this policy provides funds sufficient to pay for some or all of the premiums, costs and expenses associated with obtaining and maintaining my life insurance policy; however, I have not entered into any agreement by which I am to receive consideration in exchange for procuring this policy; and
(3) The borrower has an insurable interest in the insured.''