Mont. Code Ann. §33-20-135 — what it says, and how the exam tests it

33-20-135. Variable interest rates on policy loans. (1) (a) Life insurance policies issued on or after October 1, 1985, may have a provision permitting policy loan interest rates as follows: (i) a maximum interest rate of not more than 8% a year; or (ii) an adjustable maximum interest rate established from time to time by the life insurer as permitted by 33-20-132 through 33-20-136. (b) A life insurer is not permitted to issue policies containing variable rates of interest on policy loans under subsection (1)(a)(ii) unless the insurer also makes available policies, which may or may not be on the same plan of insurance, with fixed rates of interest on policy loans under subsection (1)(a)(i). (2) The rate of interest charged on a policy loan made under subsection (1)(a)(ii) may not exceed the greater of: (a) the published monthly average for the calendar month ending 2 months before the date on which the rate is determined; or (b) the rate used to compute the cash surrender values under the policy during the applicable period plus 1% a year. (3) If the maximum rate of interest is determined pursuant to subsection (1)(a)(ii), the policy must contain a provision setting forth the frequency at which the rate is to be determined for that policy. (4) The maximum rate for each policy must be determined at regular intervals that must occur at least once every 12 months, but may not occur more frequently than once in any 3-month period. At the intervals specified in the policy, the rate being charged: (a) may be increased whenever an increase as determined under subsection (2) would increase the rate by 0.5% or more a year; (b) must be reduced whenever a reduction as determined under subsection (2) would decrease the rate by 0.5% or more a year. (5) The life insurer shall: (a) notify the policyholder of the initial rate of interest on the loan at the time a cash loan is made; (b) notify the policyholder, with respect to premium loans, of the initial rate of interest on the loan as soon as practical after making the initial loan. Notice does not have to be given to the policyholder when a further premium loan is added, except as provided in subsection (5)(c). (c) send reasonable advance notice of any increase in the rate to policyholders with loans; and (d) include in the notices required by this subsection (5) the substance of subsection (1) and the frequency of rate…