Virginia State Life, Health And Annuities Practice Exam

What type of life insurance policy is eligible to include an automatic premium loan provision?

Increasing term Level term Decreasing term Whole life

Correct Answer:

Whole life

Explanation:

Whole life insurance policies are eligible to include an automatic premium loan provision because they have a cash value component. The automatic premium loan provision allows the insurer to automatically use the cash value of the policy to pay the premium if it is not paid by the end of the grace period. This feature serves as a safety net for policyholders, preventing their policy from lapsing due to non-payment. In contrast, term life insurance policies, whether they are increasing, level, or decreasing, do not accumulate cash value. Therefore, they do not have the capacity to allow for an automatic premium loan provision since no cash value is available SAMPLEto borrow against to cover unpaid premiums.

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