Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A policyowner has elected the automatic premium loan (APL) option on a whole life policy and fails to pay a scheduled premium. The insurer will:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The automatic premium loan provision directs the insurer to pay an overdue premium by borrowing against the policy's cash value, keeping the policy in force so the insured stays covered. The loan accrues interest and is secured by the cash value; if the loan with interest grows to exceed the policy's value, the policy may eventually lapse. APL is elected by the policyowner and prevents lapse when the owner forgets to pay. It differs from immediate termination, from the nonforfeiture extended-term election (which requires a lapse decision), and from beneficiary involvement.
Why the other options are wrong
- B) With the APL option, the insurer prevents termination by borrowing from the cash value to pay the premium. Immediate termination would defeat the purpose of the option.
- C) Extended term is a nonforfeiture option chosen by the policyowner upon lapse. APL acts before lapse by paying the premium with a policy loan, not by converting the contract.
- D) Beneficiaries have no obligation to pay premiums. The automatic premium loan is secured by the policy's cash value, not by any charge against the beneficiary.
Memory hook
APL: the policy pays its own bill from its piggy bank so it never skips a beat.