1. (1) A refund formula shall be at least as favorable to the debtor as the formulas in this section.

2. (2) The refund formulas in this section are the minimum requirements for a plan described in Subsections (2)(a) through (c).

   1. (a)(i) The pro rata unearned gross premium method shall provide the minimum refund amount for level term credit insurance and credit insurance coverage under which premiums are collected from the debtor on a basis other than the single premium basis.

      1. (ii) Refund = t/n(original gross single premium)

         1. (A) t = the number of remaining months; and
         2. (B) n = the original loan term in months.

   2. (b)(i) The Rule of 78 or sum of the digits unearned premium method shall provide the minimum refund amount for insurance coverage that:

      1. (A) reduces in equal amounts per month; and
      2. (B) the premiums are collected on a single premium basis.

      3. (ii) Refund = (t(t+1)/n(n+1))(original gross single premium)

         1. (A) t = the number of remaining months; and
         2. (B) n= the original loan term in months.

   3. (c) A combination of the pro rata method and the Rule of 78 method or, at the option of the insurer, the pro rata method shall be used for:

      1. (i) credit life insurance provided as a combination of level and decreasing term coverage; and

      2. (ii) credit accident and health insurance when the insured is:

         1. (A) covered for a constant maximum indemnity for a given time period; and
         2. (B) after the time period the maximum indemnity begins to decrease in equal amounts per month.

3. (3) For net indebtedness insurance, another type of insurance, and another mode of premium payment, each insurer shall:

   1. (a) file for approval each formula and factor for a refund; and

   2. (b) include in the policy:

      1. (i) each formula and factor for a refund; or
      2. (ii) reference each formula and factor filed and approved by the commissioner.

4. (4) For net indebtedness, the acceptable methods of refund calculations are:

   1. (a) the actuarial method, also known as the U.S. Rule or the pure premium method; or
   2. (b) an arithmetic average of refunds due under pro rata and Rule of 78 methods.

5. (5) When credit insurance is terminated:

   1. (a) no charge may be made for the first 15 days of a loan month; and
   2. (b) a full month may be charged for 16 days or more of a loan month, unless a refund is made on a pro rata basis for each day within the loan month.
6. (6) If the total of all refunds due to a debtor or joint debtors is less than $5, no refund is required.

KEY: insurance law

Date of Last Change: March 25, 2022

Notice of Continuation: October 19, 2021

Authorizing, and Implemented or Interpreted Law: 31A-2-201