Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A policyowner with a whole life policy fails to pay a premium, but the policy contains an automatic premium loan provision and has sufficient cash value. What happens?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under the automatic premium loan provision, if a premium is unpaid and the policy has enough cash value, the insurer automatically makes a loan to pay the premium, keeping coverage in force without a lapse. The loan accrues interest and, like any policy loan, must eventually be repaid or it will reduce the death benefit or the cash value available at settlement. The provision is designed to prevent an unintended lapse when a policyowner simply forgets to pay or is temporarily unable to do so.
Why the other options are wrong
- A) With adequate cash value and an automatic premium loan provision in place, the policy does not lapse; lapse occurs only without the provision or with insufficient value.
- C) The cash value is not distributed to the owner under this provision; it is used as collateral for an automatic loan made to pay the premium.
- D) The death benefit is reduced only by the outstanding loan balance and accrued interest, never by the entire face amount.
Memory hook
APL = the cash value quietly pays your premium so the policy never lapses at midnight.