Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
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?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
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.
Why the other options are wrong
- B) Lapse does occur when premiums go unpaid, but APL prevents it by using cash value first; the policy lapses only if cash value is insufficient.
- C) Reducing the death benefit is a possible result of a reduced paid-up election, not of APL.
- D) APL keeps the same policy in force; it does not convert the coverage into a term policy.
Memory hook
APL = the cash value quietly pays the bill so the policy never misses a beat.