Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersMedium
An insured has a life insurance policy with the 'Automatic Premium Loan' (APL) provision. If the insured forgets to pay the premium by the end of the grace period, what will happen?
- AThe insurer will send a final notice, allowing an additional 30 days to pay.
- BThe policy will immediately lapse.
- CThe policy will convert to extended term insurance.
- DThe insurer will automatically borrow from the policy's cash value to pay the overdue premium.
Show answer & explanationAnswer & explanation
Correct answer: D. The insurer will automatically borrow from the policy's cash value to pay the overdue premium.
The Automatic Premium Loan (APL) provision is a rider that automatically uses the policy's cash value to pay an overdue premium at the end of the grace period, preventing the policy from lapsing. This maintains the policy's in-force status.
Why the other options are wrong
- A. A final notice may be sent, but the APL acts automatically to prevent lapse before such a period.
- B. This would happen if APL was not present or cash value was insufficient.
- C. This is the automatic nonforfeiture option if no other option is chosen and APL is not present.
Automatic Premium Loan (APL) Provision
A life insurance policy provision that, if selected, automatically pays an overdue premium from the policy's available cash value at the end of the grace period, preventing the policy from lapsing.
- Prevents unintentional policy lapse.
- Requires sufficient cash value to cover the premium.
- Creates a policy loan against the cash value.
Memory trick: APL is your policy's 'SELF-PAY' safety net.