AD Banker Comprehensive Practice Exam

When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from:

1. Converting

2. Renewing

3. Lapsing

4. Surrendering

The correct answer is: Lapsing

The Automatic Premium Loan provision is a feature in many whole life insurance policies that comes into play when the policyholder fails to pay the premium. When there is sufficient cash value accumulated in the policy, this provision automatically borrows the necessary funds from that cash value to cover the unpaid premium. This helps to prevent the policy from lapsing. Lapsing occurs when a policy is terminated due to non-payment of premiums, resulting in the loss of coverage. By utilizing the Automatic Premium Loan, the insurance company ensures that the policy remains in force, thereby protecting the policyholder from unintentional lapse due to missed premium payments. The provision effectively acts as a safeguard, allowing the policy to continue, as long as there is enough cash value available. In contrast, other options such as converting, renewing, or surrendering the policy do not directly relate to this provision. Converting typically refers to converting a term policy to a permanent policy, renewing involves extending the policy’s coverage period, and surrendering means terminating the policy for its cash value. None of these processes are directly influenced by the Automatic Premium Loan provision in the same way that lapsing is.