Section 215 ILCS 5/229.5 - Policy loan interest rates(a) As used in this Section, unless the context requires otherwise: (1) "Policy" includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.(2) "Policy loan" includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they became due.(3) "Policyholder" includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.(4) "Published Monthly Average" means: (i) Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto; or(ii) In the event that Moody's Corporate Bond Yield Average - Monthly Average Corporates is no longer published, a substantially similar average, established by regulation issued by the Director.(b) Maximum rate of interest on policy loans. (1) Policies issued on or after the effective date of this amendatory Act of 1981 shall provide for policy loan interest rates as follows: (i) A provision permitting a maximum interest rate of not more than 8% per annum; or(ii) A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.(2) The rate of interest charged on a policy loan made under subsection (1)(ii) shall not exceed the higher of the following: (i) The Published Monthly Average for the calendar month ending 2 months before the date on which the rate is determined; or(ii) The rate used to compute the cash surrender values under the policy during the applicable period plus 1% per annum.(3) If the maximum rate of interest is determined pursuant to clause (ii) of paragraph (1) of this subsection (b), the policy shall 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 at least once every 12 months, but not more frequently than once in any 3 month period. At the intervals specified in the policy:(i) The rate being charged may be increased whenever such change as determined under paragraph (2) of this subsection (b) would increase that rate by 1/2;% or more per annum.(ii) The rate being charged must be reduced whenever such reduction as determined under paragraph (2) of this subsection (b) would decrease that rate by 1/2;% or more per annum.(5) The life insurer shall: (i) notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan;(ii) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in (iii) below;(iii) send to policyholders with loans a reasonable advance notice of any increase in the rate; and(iv) include in the notices required above the substance of the pertinent provisions of paragraph (1) and (3) of this subsection (b).(6) The loan value of the policy shall be determined in accordance with Section 229.3, but no policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year, and the life insurer shall maintain coverage during that policy year until such time as it would otherwise have terminated if there had been no change in the interest rate during that policy year.(7) The substance of the pertinent provisions of paragraphs (1) and (3) of this subsection (b) shall be set forth in the policies to which they apply.(8) For purposes of this Section, the rate of interest on policy loans permitted under this Section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.(9) No other provisions of law shall apply to policy loan interest rates unless made specifically applicable to such rates.(c) The provisions of this Section shall not apply to any insurance contract issued before the effective date of this amendatory Act of 1981, unless the policyholder agrees in writing to the applicability of such provisions.