Grace Period
The time after a premium due date during which the policy stays in force even though the premium is unpaid. For life insurance, typically 31 days; overdue premium accrues interest.
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Practice This Concept
A policyowner fails to pay a premium on time and lets the grace period expire. The whole life policy has cash value and an automatic premium loan provision. What happens?
The insurer loans the premium amount from the cash value to keep the policy in force — The automatic premium loan (APL) provision authorizes the insurer to borrow from the policy's cash value to pay an unpaid premium once the grace period ends, keeping the policy in force. The loan, plus interest, is charged against the cash value and is deducted from the death benefit or cash value at a later date. APL prevents an unintended lapse for policyowners who miss a payment but have sufficient cash value. If the cash value is insufficient to cover the premium, the policy may still lapse.
National insurance concept
A policyowner with a whole life policy stops paying premiums during the grace period. If the policy includes an automatic premium loan (APL) provision, what will happen?
The insurer will automatically borrow against the cash value to pay the premium and keep the policy in force — The automatic premium loan (APL) provision authorizes the insurer to pay an unpaid premium by borrowing from the policy's cash value, preventing an unintended lapse. The loan is secured by the cash value and accrues interest; if not repaid, the loan plus interest is deducted from the death benefit or cash value at surrender. APL is a nonforfeiture-related convenience, not a conversion of coverage. It operates only while sufficient cash value exists; if the cash value cannot cover the premium, the policy may still lapse.
National insurance concept
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