5. The subcommittee next heard the report by the (C4) Technical Subcommittee, Mr. Ted Becker, of the Texas Department, for the use of Dynamic (or floating) Interest Rate of Policy Loans.
Life insurance companies are also in danger of a major acceleration of loans on outstanding policies at well below market cost of funds if short-term interest rates, especially for money market funds, continue at approximately twice the rate at which most individual policy loan contracts are written.
-- STATEMENT OF ALAN GREENSPAN, TOWNSEND-GREENSPAN &
CO., INC., NEW YORK, N.Y.
1981 - GOV - THE 1981 ECONOMIC REPORT OF THE PRESIDENT, part 1
Barrett - Direct 91 - 15 Binder - p9141
J&J COURT TRANSCRIBERS, INC.
1 Q Well, the focus on income payments, what he would get
2 after retirement --
3 A You mean policy loans is what we’re talking about.
4 Q All right. The letter refers to income payments, correct?
5 A Um hum. Yes.
6 Q Is there any reference there to policy loans?
7 A No. But that’s what they were.
- In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA "creditors." The insurance companies do not extend, renew, or continue credit; nor do they arrange for such transactions. Rather, despite the use of the word "loan," a policy loan is in substance an advance payment of the policy's cash surrender value. It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because if a policyholder does not repay the loan, the insurance company's recourse is simply to reduce the policy benefits by the outstanding balance of the loan.
- Col. Jacob Green, late president of the Connecticut Mutual, remembered for a lifetime spent in untiring attacks upon the deferred or tontine dividend system, was a bitter opponent of the policy-loan idea. (p56)
- Policy loans secured against the cash surrender values of the contract followed the more general adoption of cash values, and were, like the extended insurance provisions, greatly deprecated by many on the theory that loans would tend to promote lapses.
1909 - The Romance of Life Insurance