HB262INTRODUCED
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HB262
YLXM222-1
By Representative Ellis
RFD: Insurance
First Read: 12-Feb-25
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5 YLXM222-1 02/06/2025 KMS (L)ccr 2025-669
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First Read: 12-Feb-25
SYNOPSIS:
Under existing law, the insurable interest law
and the life insurance policy loan law contain
antiquated internal citations to sections of the Code
of Alabama 1975, relating to preneed insurance and life
insurance.
This bill would correct those internal citations
to refer to the correct sections of the Code of Alabama
1975.
A BILL
TO BE ENTITLED
AN ACT
Relating to insurance; to amend Sections 27-14-3 and
27-15-8, Code of Alabama 1975, to correct internal citations
to the code contained in those sections.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Sections 27-14-3 and 27-15-8 of the Code of
Alabama 1975, are amended to read as follows:
"§27-14-3
(a) Insurable interest with reference to personal
insurance is an interest based upon a reasonable expectation
of pecuniary advantage through the continued life, health, or
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of pecuniary advantage through the continued life, health, or
bodily safety of another person and consequent loss by reason
of his or her death or disability or a substantial interest
engendered by love and affection in the case of individuals
closely related by blood or by law.
(b) An individual has an unlimited insurable interest
in his or her own life, health, and bodily safety and may
lawfully take out a policy of insurance on his or her own
life, health, or bodily safety and have the same made payable
to whomsoever he or she pleases, regardless of whether the
beneficiary so designated has an insurable interest.
(c) A corporation, foreign or domestic, has an
insurable interest in the life or physical or mental ability
of any of its directors, officers, or employees, or the
directors, officers, or employees of any of its subsidiaries
or any other person whose death or physical or mental
disability might cause financial loss to the corporation; or,
pursuant to any contractual arrangement with any shareholder
concerning the reacquisition of shares owned by the
shareholder at the time of his or her death or disability, on
the life or physical or mental ability of that shareholder for
the purpose of carrying out the contractual arrangement; or
pursuant to any contract obligating the corporation as part of
compensation arrangements or pursuant to a contract obligating
the corporation as guarantor or surety, on the life of the
principal obligor. The trustee of a trust established by a
corporation for the sole benefit of the corporation has the
same insurable interest in the life or physical or mental
ability of any person as does the corporation. The trustee of
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ability of any person as does the corporation. The trustee of
a trust established by a corporation providing life, health,
disability, retirement, or similar benefits to employees of
the corporation or its affiliates and acting in a fiduciary
capacity with respect to the employees, retired employees, or
their dependents or beneficiaries has an insurable interest in
the lives of employees for whom the benefits are to be
provided.
(d) After satisfaction of the requirements of Section
27-17A-32(d)(1) 34-13-232(d)(1) , the trustee of a trust
established by a certificate holder which complies with the
requirements of Chapter 17A Article 5 of Chapter 13 of Title
34 has an insurable interest in the life of a preneed contract
purchaser or a preneed contract beneficiary. It is the
intention of the Legislature that the preceding sentence shall
be retroactive and shall also apply to all policies, as
defined in this chapter, issued prior to May 6, 2008. It is
also the intention of the Legislature that the value of any
life insurance policy purchased by a trust pursuant to Chapter
17A Article 5 of Chapter 13 of Title 34 shall not exceed the
lesser of twenty thousand dollars ($20,000) or 100 percent of
the purchase price of the preneed contract regulated under
Chapter 17A Article 5 of Chapter 13 of Title 34 . Further, it
is the intention of the Legislature that any life insurance
policy purchased by a trust pursuant to Chapter 17A Article 5
of Chapter 13 of Title 34 be used for the sole benefit of the
preneed contract purchaser, the preneed contract beneficiary,
or the funeral establishment or cemetery providing funeral
services, burial services, or funeral merchandise for the
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services, burial services, or funeral merchandise for the
preneed contract purchaser, and not for the benefit of another
person who otherwise lacks an insurable interest under this
section.
(e) Any provision of this section and chapter to the
contrary notwithstanding, a charitable organization that meets
the requirements of Section 26 U.S.C. § 501(c)(3) of the
Internal Revenue Code of 1986, as amended, may own or purchase
life insurance on an individual who consents to the ownership
of purchase of that insurance. The charitable organization
shall be deemed to have a substantial interest in the
individual insured and to have an insurable interest in the
individual insured whether the charitable organization
originally purchases the insurance or the insurance is later
transferred to the charitable organization by the insured or
another person. This subsection is intended to clarify and
declare existing law.
(f) An insurable interest shall exist at the time the
contract of personal insurance becomes effective, but this
requirement need not exist at the time the loss occurs.
(g) Any personal insurance contract procured , or caused
to be procured, upon another individual is void unless the
benefits under the contract are payable to the individual
insured, or his or her personal representative, or to a person
having, at the time when the contract was made, an insurable
interest in the individual insured. In the case of a void
contract, the insurer shall not be liable on the contract but
shall be liable to repay to the person, or persons, who have
paid the premiums, all premium payments without interest."
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paid the premiums, all premium payments without interest."
"§27-15-8
(a) In case of policies issued on and after the
operative date of Section 21-15-28 27-15-28, amended and
renumbered as Article 3 of Chapter 15 , there shall be a
provision that after the policy has a cash surrender value and
while no premium is in default beyond the grace period for
payment the insurer will shall advance, on proper assignment
or pledge of the policy and on the sole security thereof, at a
specified rate of interest not exceeding eight percent per
annum, payable in advance, an amount equal to or, at the
option of the party entitled thereto, less than the loan value
of the policy. The loan value of the policy shall be at least
equal to the cash surrender value at the end of the then
current policy year, provided that the insurer may deduct,
either from such the loan value or from the proceeds of the
loan, any existing indebtedness not already deducted in
determining such the cash surrender value including any
interest then accrued but not due, any unpaid balance of the
premium for the current policy year , and interest on the loan
to the end of the current policy year. The policy may also
provide that if interest on any indebtedness is not paid when
due it shall then be added to the existing indebtedness and
shall bear interest at the same rate and that, if and when the
total indebtedness on the policy, including interest due or
accrued, equals or exceeds the amount of the loan value
thereof, then the policy shall terminate and become void, but
not until at least 30 days' notice shall have been mailed by
the insurer to the last known address of the insured or
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the insurer to the last known address of the insured or
policyowner and of any assignee of record at the home office
of the insurer. The policy shall reserve to the insurer the
right to defer the granting of a loan, other than for the
payment of any premium to the insurer, for six months after
application therefor. The policy, at the insurer's option, may
provide for automatic premium loan, subject to an election of
the party entitled to elect.
(b) This section shall not apply to term policies nor
to term insurance benefits provided by rider or supplemental
policy provision."
Section 2. This act shall become effective on June 1,
2025.
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