Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An automatic premium loan (APL) provision allows the insurer to:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
The automatic premium loan provision is designed to prevent unintentional lapse of a policy that has cash value. If the policyowner fails to pay a premium by the end of the grace period, the insurer automatically makes a policy loan in the amount of the premium, using the cash value as security, so that coverage continues. The loan accrues interest, and if the total of loans plus interest ever exceeds the cash value, the policy will terminate. The policyowner must authorize the provision, often on the application.
Why the other options are wrong
- A) APL draws on the policy's own cash value; the insurer does not borrow from any outside bank on the insured's behalf.
- B) APL responds to a missed premium, not to changes in interest rates; universal life premium needs vary with credited rates, but APL itself is triggered by nonpayment.
- D) APL keeps coverage alive; it does not cancel the policy or pay cash to the insured.
Memory hook
APL: the cash value pays the bill so the policy doesn't die.