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Yes.

Alabama allows a creditor to offer optional credit life insurance.

Governing Law & Definitions. The Alabama Consumer Credit Act, Ala. Code §§ 5-19-1 et seq. ("Mini-Code"), authorizes a creditor to offer optional credit life insurance. Ala. Code § 5-19-20(b). The Alabama Banking Department, Bureau of Loans ("Banking Department"), has issued Alabama General Insurance Regulations at Ala. Admin. Code r. 155-2-2-.12 and Ala. Admin. Code r. 155-2-2-.13 ("Mini-Code Insurance Regulations").

Credit life insurance is also subject to the Alabama Insurance Code, Ala. Code §§ 27-1-1 et seq. ("Insurance Code") and the Credit Life and Disability Rules, Ala. Admin. Code r. 482-1-117-.01 et seq. ("CL&D Rules"), issued by the Alabama Insurance Department ("Insurance Department").

The CL&D Rules define the term "credit life insurance" to mean insurance on a debtor or debtors, in connection with a specific credit transaction, to provide for satisfaction of a debt, in whole or in part, upon the death of the insured debtor, and which precludes debtor selection as to primary beneficiary. Ala. Admin. Code r. 482-1-117-.04(h).

Permissibility. The Mini-Code authorizes a creditor to offer optional credit life insurance as long as:

• the charge is not more than the permitted premium;
• the term of insurance is not more than the term of credit; and
• the amount of insurance is not more than the approximate amount of credit.

Ala. Code § 5-19-20(b)(1).

The Mini-Code allows an insurance premium to be included in the amount financed as long as it is not a finance charge. The Mini-Code defines the term "finance charge" to mean the sum of all charges, payable directly or indirectly by the person to whom credit is extended and imposed directly or indirectly by the creditor as an incident to the extension of credit. The term excludes any fee that is not a finance charge under the federal Truth in Lending Act, 15 USC §§ 1601 et seq. ("TILA"). Ala. Code § 5-19-1(1). TILA excludes a premium for credit life insurance from the finance charge if:

• the coverage of the debtor by the insurance is not a factor in the approval by the creditor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit; and
• in order to obtain the insurance in connection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of such desire to do so after written disclosure to them of the cost thereof.

15 USC § 1605(b).

Because TILA allows a creditor to exclude a premium for credit life insurance from the finance charge under the above conditions, the Mini-Code allows such a premium to be part of the amount financed under those conditions.

The Mini-Code provides that if the payment schedule requires the consumer to pay the debt in substantially equal installments which include a portion of the amount financed, the amount of credit life insurance at any time may not be more than the greater of the approximate unpaid balance of the debt, excluding unearned finance charges, if any, or the approximate unpaid scheduled balance of the debt, excluding unearned finance charges, if any, plus the amount of one scheduled payment. Ala. Code § 5-19-20(b)(2).

The Mini-Code requires a creditor to pay any excess credit life insurance benefit to the debtor's estate or a named beneficiary. Ala. Code § 5-19-20(b)(2).

The Mini-Code Insurance Regulations provide that the insurance must be issued by a company licensed to do business in Alabama and must comply with the requirements imposed by the Insurance Department. Ala. Admin. Code r. 155-2-2-.12(1).

The Mini-Code Insurance Regulations provide that consumers may cancel and receive a full refund of insurance sold in conjunction with a credit transaction within 30 days after the insurance is issued. Ala. Admin. Code r. 155-2-2-.12(13)(b)(iii).

Disclosures. The Mini-Code Insurance Regulations require a Mini-Code licensee who offers insurance to:

• provide written disclosure to the customer that:
  • during the process of applying for a consumer credit contract the consumer may be solicited for one or more insurance products; and
  • the purchase of any insurance product may not be a condition for a consumer credit contract approval or for obtaining a consumer credit contract with the licensee except as permitted under Ala. Code § 5-19-20;
• provide to each prospective insured a disclosure statement, signed by both the principal debtor and the cosigner if joint insurance is to be purchased for that co-signer, along with the licensee's agent indicating the following:
  • the principal debtor's desire and if joint insurance is to be purchased, the insured cosigner's desire to purchase the insurance coverage(s) as described in the disclosure statement;
  • the principal debtor and any covered co-signer fully understand that buying the insurance is not a condition of the loan (this disclosure must be made in bold face print in the disclosure statement);
  • the insured(s) may cancel the policy within 30 days after the insurance is issued and receive a full refund of the insurance premium paid, by returning the insurance contract to the insurer or upon written instructions to the insurer from the insured; and
  • the insured(s) may cancel the insurance more than 30 days after the insurance has been issued by giving notice of cancellation to the insurer, and on cancellation, will receive a portion of the insurance premium paid as provided by regulations, rules, and orders of the Insurance Department; and
• provide, at the consumer credit contract closing, the principal debtor with either the insurance contract purchased, or an easy to read and understand description for each insurance product requested for purchase, if such description complies with the rules, regulations, and orders of the Insurance Department.

Ala. Admin. Code r. 155-2-2-.12(13).

Notice Requirements at Termination. Alabama does not impose any notice requirements upon termination of optional credit life insurance.

Refund Requirements at Termination. The Mini-Code Insurance Regulations require a creditor to cancel any credit insurance as of the date the debt is prepaid, renewed, or refinanced. The creditor must refund any unearned premiums (except credit life insurance premiums, which the creditor earns fully as of the date of death) in accordance with the rules established by the Insurance Department. Ala. Admin. Code r. 155-2-2-.13(1). The creditor does not have to make a refund if the amount of the refund is less than $1. Ala. Admin. Code r. 155-2-2-.13(2).

The CL&D Rules require a creditor to promptly make a refund of any amount paid by or charged to the debtor for insurance by either paying or crediting the person entitled to the refund. Ala. Admin. Code r. 482-1-117-.11(2).

The CL&D Rules require a creditor to calculate the refund by multiplying the original single premium, charge, or periodic payment by the appropriate refund factor. Ala. Admin. Code r. 482-1-117-.11(3).

In determining the refund, if less than 15 days of insurance coverage have been provided during the credit transaction month, no charge may be made for that month. If 15 or more days of coverage have been provided during the credit transaction month, a full month may be charged. Ala. Admin. Code r. 482-1-117-.11(3)(a).

For level term credit life insurance, the refund may be no less than the refund computed based on a pro rata basis. Ala. Admin. Code r. 482-1-117-.11(3)(b). For decreasing term credit life insurance and credit disability insurance provided on the single premium basis, the refund may be no less than the refund computed, in the discretion of the insurer, either on the basis of the Rule of 78s or an actuarial basis. Ala. Admin. Code r. 482-1-117-.11(3)(c). For any plans not listed above, the refund method must be the "Actuarial Method" and the creditor must file the formula with the Commissioner. Ala. Admin. Code r. 482-1-117-.11(3)(d).

The CL&D Rules allow the creditor to make the refund by delivering the amount in cash to the debtor, or by crediting the amount to the principal, outstanding interest, or other fees owed, as determined by the insurer or creditor, or as otherwise provided in the agreement relating to the credit transaction. Ala. Admin. Code r. 482-1-117-.11(5).

September 26, 2022   Show Redlined Changes