Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
An automatic premium loan (APL) provision in a life insurance policy does which of the following?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An automatic premium loan provision authorizes the insurer to borrow against the policy's cash value to pay an unpaid premium, keeping the policy in force during a period of nonpayment. APL is commonly used after the grace period expires and only when sufficient cash value exists. The loan accrues interest against the cash value. It differs from a nonforfeiture option, which would surrender or reduce coverage.
Why the other options are wrong
- B) Free-look refunds return premiums paid after cancellation within the statutory period; APL is about keeping the policy alive.
- C) Converting to paid-up coverage at a reduced amount is the reduced paid-up nonforfeiture option, not an APL.
- D) Moving the policy to another insurer is a policy transfer or replacement, not an APL.
Memory hook
APL = the cash value lends the policy its own premium. A self-pay safety net against forgetting to pay.