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Automatic premium loans help you pay for your life insurance policy. Bankrate explains. What is an automatic premium loan?An automatic premium loan is often associated with a life insurance policy that has a cash value. It is a specific clause, or rider, within the policy that allows the insurance issuer to withdraw premium payments from the accrued value of the policy when the policyholder is unable to or neglects to continue paying. Deeper definitionWhen someone holds a cash-value life insurance policy, her premium payments accumulate to add what’s called a “cash surrender value.” The policyholder is able to borrow against it, and many life insurance policies have a clause stating that the insurance company can also automatically borrow against it in the case of a delinquent payment. Automatic premium loan clauses are often an optional component to a life insurance policy. It gives the insurer the right to make this automatic payment based on the current cash value of the policy at the end of the specified grace period. The benefit of this clause is to minimize the risk that the insurance policy will lapse because of the nonpayment of the premium. The automatic premium loan also does not affect the face value of the policy — what it’s worth when redeemed — but it does accrue interest just like any other loan. The policyholder will still have to pay back the full amount of the loan plus interest, and the amount will be deducted from the payout if the policyholder dies before paying off what she owes. Want to leave even more money for your heirs? Start a savings account and get interest on your deposits. Automatic premium loan exampleWithin Joe’s life insurance policy, the automatic premium loan clause gives his insurer the ability to remove the $500 annual premium from the built-up cash value of the policy. Joe forgot to make his payment on time, but this clause helped to cover the cost of the premium by reducing the cash value of the plan. In this way, Joe’s policy did not lapse, and continues to provide him with protection. More From Bankrate
What is the automatic premium loan provision?An automatic premium loan is often associated with a life insurance policy that has a cash value. It is a specific clause, or rider, within the policy that allows the insurance issuer to withdraw premium payments from the accrued value of the policy when the policyholder is unable to or neglects to continue paying.
What is the purpose of the automatic premium loan provision quizlet?The automatic premium loan provision permits the insurer to automatically use the policy cash value to pay an overdue premium. The correct answer is: The insurer will automatically use the policy cash value to pay an overdue premium.
Which provision allows an insurer to borrow from the cash value?The Automatic Premium Loan Provision enables the insurer to borrow automatically from the policy's cash value, at the end of the grace period, to cover a premium payment to prevent the policy from lapsing.
What happens when a policy is surrendered for its cash value?What happens when a policy is surrendered for cash value? When a policy is surrendered, you'll lose coverage and no longer be responsible for paying insurance premiums. If your policy has cash value, you'll get this money after surrender fees have been taken into account.
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