Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An automatic premium loan (APL) provision operates by:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When the policyowner authorizes an automatic premium loan, the insurer pays a missed premium by borrowing against the policy's cash value once the grace period expires, so coverage continues without a lapse. The loan bears interest, and if the total of outstanding loans plus accrued interest ever equals or exceeds the cash value, the policy terminates after proper notice. APL is a convenience that prevents inadvertent lapse — it is not free coverage and does not waive the obligation to pay.
Why the other options are wrong
- B) The premium is not forgiven; it becomes a loan against the policy's cash value and must eventually be repaid with interest.
- C) APL prevents termination by keeping the policy in force; it does not cause the policy to terminate or refund cash value.
- D) The face amount is not increased; the APL simply advances the premium from the cash value, leaving the death benefit unchanged.
Memory hook
APL = the cash value pays the rent when you forget, but it is a loan with interest — eventually the well runs dry.