[Code of Federal Regulations]
[Title 38, Volume 1]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 38CFR8.13]

[Page 508-509]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
                CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS
 
PART 8_NATIONAL SERVICE LIFE INSURANCE--Table of Contents
 
Sec. 8.13  Policy loans.

    (a) At any time after the premiums for the first policy year have 
been paid and earned and before default in payment of any subsequent 
premium, and upon the execution of a loan agreement satisfactory to the 
Secretary, the United States will lend to the insured on the security of 
his or her National Service Life Insurance policy, any amount which will 
not exceed 94 percent of the reserve, and any indebtedness on the policy 
shall be deducted from the amount advanced on such loan. At any time 
before default in the payment of the premium, the loan may be repaid in 
full or in amounts of $5 or more. Failure to pay either the amount of 
the loan or the interest thereon shall not make the policy voidable 
unless the total indebtedness shall equal or exceed the cash value. When 
the amount of the indebtedness equals or exceeds the cash value, the 
policy shall become voidable. On loans applied for before the effective 
date of this regulation (November 2, 1987) and not exchanged pursuant to 
paragraph (b) of this section, the policy loan interest rate in effect 
when the loan was applied for shall not be increased for the term of the 
loan.

[[Page 509]]

    (b) Loans applied for or exchanged on and after the effective date 
of this regulation (November 2, 1987) shall bear interest at a rate 
which may be varied during the term of the loan, not more frequently 
than once a year, as provided by paragraphs (c) and (d) of this section. 
After October 1, 1988, the policy loan rate shall not be varied more 
frequently than once a year. Notification of the initial rate of 
interest on new loans will be forwarded at the time the loan is made. 
Policyholders with existing variable rate loans will be forwarded 
reasonable advance notice of any increase in the rate. Reasonable 
advance notice of any change in the variable loan rate will be published 
in the Federal Register. A notice pertaining to variable loans which is 
sent to the policyholder's last address of record will constitute 
sufficient evidence of notice.
    (c) Subject to the provisions of paragraph (d) of this section, loan 
rates established pursuant to paragraph (b) of this section shall equal 
the yield on the Ten-Year Constant Maturities Index for U.S. Treasury 
Securities for the month of June of the year of calculation rounded down 
to the next whole percentage. Such loan rate shall be effective on the 
date on or after the first day of October on which the rate change is 
made in the insurance automatic data processing system, and shall remain 
in effect for not less than one year after the date of establishment. 
The prevailing variable loan rate shall apply to all loans granted under 
paragraph (b) of this section.
    (d) Notwithstanding any other provisions of this section, the 
variable loan rate shall not exceed 12 percent or be lower than 5 
percent per annum.

(Authority: 38 U.S.C. 1906)

[52 FR 39626, Oct. 2, 1987, as amended at 53 FR 17466, May 17, 1988; 59 
FR 65717, Dec. 21, 1994. Redesignated at 61 FR 29290, June 10, 1996. 
Redesignated at 65 FR 7437, Feb. 15, 2000]

                   Extended Term and Paid-Up Insurance