Tennessee Life Producer Practice Exam

What is the purpose of the Automatic Premium Loan Provision?

1. To increase the policy's cash value

2. To avoid a policy lapse

3. To allow the policyholder to withdraw funds

4. To decrease the premium amount

The correct answer is: To avoid a policy lapse

The purpose of the Automatic Premium Loan Provision is to avoid a policy lapse. This provision automatically borrows from the policy's cash value to pay the premium if the policyholder fails to make the premium payment by the end of the grace period. This is particularly important because if a policy lapses due to non-payment, the policyholder would lose coverage and a potential death benefit. By utilizing the Automatic Premium Loan Provision, the insurance company ensures that the policy remains in force without requiring additional action from the policyholder, thus protecting their interests and maintaining the policy's benefits.