Connecticut Life Producer Practice exam

What is the maximum annual interest rate allowed for policy loans?

1. 6%

2. 8%

3. 10%

4. 12%

The correct answer is: 8%

The maximum annual interest rate allowed for policy loans is determined by state regulation to ensure that borrowers are not charged excessively high interest rates. In Connecticut, the legally permissible maximum interest rate for policy loans is set at 8%. This is a protective measure for policyholders, ensuring that the cost of borrowing against a life insurance policy remains manageable. This rate reflects an effort to balance the insurer's need to earn a return on the loaned funds with the policyholder's ability to repay that loan without facing prohibitive financial strain. Understanding this regulation is crucial for life producers as it allows them to provide accurate information to clients considering taking out a loan against their policy. In this context, options with higher interest rates, such as 10% or 12%, exceed the state-mandated cap, which could result in unfavorable conditions for policyholders. Therefore, the value of 8% aligns with legal standards and the objectives of insurance policy management.