South Carolina Life Insurance Practice Exam

What is a significant characteristic of an automatic premium loan provision?

1. It is activated at the end of a specified grace period

2. It allows policy loans to be taken against future premiums

3. It cancels the policy if the premium is not paid

4. It requires policyholders to pay late fees for overdue premiums

The correct answer is: It is activated at the end of a specified grace period

An automatic premium loan provision is a feature found in some life insurance policies that ensures the policy remains in force even if the premium is not paid on time. This provision is activated at the end of a specified grace period, which typically lasts about 30 days. During this grace period, the policyholder can still make their premium payment without any penalties or loss of coverage. If the premium is not paid by the end of the grace period, the automatic premium loan provision kicks in. This provision allows the insurer to automatically borrow from the policy's accumulated cash value to cover the premium due. As a result, the policy remains in effect, preventing unintentional lapses in coverage. This characteristic is vital for policyholders who may encounter temporary financial difficulties, as it provides a safety net and ensures continuous life insurance coverage without the immediate need for cash outlay.