Individual Life, Viaticals, and Credit Life Insurance

Individual Life and Annuities

Policy Loans (Iowa Code 511.36)

Iowa Code 511.36 governs the rights and limitations associated with policy loans against the cash value of an individual life policy:

• Right to borrow. The policyowner has the contractual right to borrow against accumulated cash value, subject to the loan provisions in the policy.
• Interest. The insurer may charge interest on the loan at rates either fixed in the policy or variable based on a market index — disclosed to the policyowner.
• Loan does not lapse the policy as long as the cash value remains sufficient to cover the outstanding loan and accrued interest.
• Outstanding loans reduce the death benefit payable to the beneficiary if the insured dies before the loan is repaid.

Iowa Code 511.36 sets the procedural and disclosure framework for Iowa policy loans.

Viatical and Life Settlements (Iowa Admin Rule 191-48.1; Iowa Code Chapter 508E)

A viatical settlement or life settlement is the sale of an existing life insurance policy by the policyowner to a third party for an amount greater than the cash surrender value but less than the death benefit. Iowa regulates these transactions under Iowa Code Chapter 508E and Iowa Admin Rule 191-48:

• Licensing. Viatical settlement brokers and viatical settlement providers must be licensed under Iowa Code Chapter 508E.
• Disclosures (Iowa Code 508E.8). Defined disclosures must be made to the policyowner before entering into a viatical settlement contract — including the right to consult independent advisors, the impact on Medicaid and other public benefits, and tax implications.
• Cooling-off period. The viator (policyowner) generally has the right to rescind the settlement within a defined period.
• Prohibited practices (Iowa Admin Rule 191-48.9). Fraud, coercion, and other prohibited practices are sanctioned with civil and criminal penalties.
• Confidentiality (Iowa Code 508E.6). The viator’s personal and medical information is confidential and may only be disclosed for defined purposes.

Credit Life Insurance (Iowa Admin Rule 191-28)

Credit life insurance pays off (or pays down) a debtor’s outstanding loan balance if the debtor dies during the term of the loan. Iowa Admin Rule 191-28 sets the consumer protections:

• Choice of insurer. A creditor may require credit life as additional security for a loan, but the debtor may furnish it through existing policies or through any insurer authorized in Iowa (Iowa Admin Rule 191-28.3(2)).
• Amount limits. The death benefit may not exceed the actual amount of the indebtedness.
• Term limits. The term of the credit life policy may not exceed the term of the underlying loan.
• Refunds on early payoff. If the debt is paid off early, the insured is entitled to a refund of unearned premium (Iowa Admin Rule 191-28.9).
• Disclosure (Iowa Admin Rule 191-28.14). The borrower must receive a clear written disclosure of premium, the right to decline, and the policy terms.
• Free look (Iowa Admin Rule 191-28.17). The borrower has a defined period to return the policy for a full refund.