What is the automatic premium loan provision?

What is the automatic premium loan provision?

• A. Withdraws dividends to pay premiums
• B. Uses cash value to pay premiums
• C. Loans money from a bank to pay premiums
• D. Cancels the policy if premiums are missed

Answer: (B)

The automatic premium loan is a feature in many permanent life policies that keeps the policy from lapsing if a premium is missed. It automatically borrows cash value to pay the overdue premium, so the policy stays in force without the insured taking action. The loan uses the cash value as collateral and will accrue interest; the outstanding loan amount (plus interest) reduces the death benefit if not repaid. This is different from withdrawing dividends, borrowing from a bank, or canceling the policy for a missed payment.

The automatic premium loan is a feature in many permanent life policies that keeps the policy from lapsing if a premium is missed. It automatically borrows cash value to pay the overdue premium, so the policy stays in force without the insured taking action. The loan uses the cash value as collateral and will accrue interest; the outstanding loan amount (plus interest) reduces the death benefit if not repaid. This is different from withdrawing dividends, borrowing from a bank, or canceling the policy for a missed payment.