An automatic premium loan (APL) provision in a whole life policy provides that:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An automatic premium loan is a nonforfeiture-related provision: if the insured fails to pay a premium when due, the insurer advances the amount as a policy loan secured by the cash value, so that coverage continues in force. It operates only while sufficient cash value exists to cover the loan. The loan plus accrued interest will be deducted from the proceeds payable at death or from the cash value at surrender. The provision prevents an unintentional lapse for a policyowner who simply forgets to pay. It is one of the standard provisions of a cash-value life insurance policy.
Why the other options are wrong
- Premiums are not forgiven under an automatic premium loan; they are advanced as a loan that must be repaid from the policy's values with interest.
- Automatic bank deduction is an electronic funds transfer arrangement between the owner and the bank, not an automatic premium loan provision.
- Extended term insurance may apply at lapse under the nonforfeiture options, but that is a separate mechanism from the automatic premium loan provision.
Memory hook
APL = the policy loans itself the premium when you forget to pay, keeping coverage alive on cash value credit.