Question 11

Automatic premium loan uses the cash value to keep the original policy in force in case of premium default.

An automatic premium loan provision allows the insurer to use the accumulated cash value of a life insurance policy to cover a missed premium payment, thus preventing the policy from lapsing.

A) Extended term

Extended term is a non-forfeiture option that allows the policyholder to convert the cash value into a term insurance policy for a specific duration. While it utilizes the cash value, it does not maintain the original policy in force during a premium default but rather replaces it with a term coverage.

B) Automatic premium loan

The automatic premium loan provision directly addresses premium defaults by allowing the insurer to automatically withdraw from the policy's cash value to pay the due premium. This ensures that the policy remains active even if the policyholder fails to make a payment.

C) Waiver of premium

The waiver of premium provision allows the policyholder to skip premium payments under certain circumstances, such as disability. However, it does not involve using cash value to keep the policy in force; instead, the insurer waives the requirement for premium payment.

D) Return of premium

The return of premium option guarantees that the policyholder will receive back the premiums paid if the insured survives the term of the policy. This provision does not relate to premium defaults or the maintenance of the policy in force.

Conclusion

The automatic premium loan provision is the only option that specifically utilizes the cash value to prevent a policy from lapsing due to non-payment of premiums. Other options either replace the policy, waive payment requirements, or guarantee a return of premiums, but none provide the same functionality as the automatic premium loan. Thus, option B is definitively correct.