What happens if an insured continually uses the automatic premium loan option?

What happens if an insured continually uses the automatic premium loan option?

• A. The policy stays active indefinitely
• B. The policy will terminate when cash value is depleted
• C. The policy benefits increase due to loans
• D. The policy receives an automatic renewal

Answer: (B)

The automatic premium loan option is a feature in many life insurance policies that allows the insurer to use the policy's cash value to pay for premiums that are not paid by the policyholder. If an insured consistently relies on this option to cover premiums, the cash value will gradually diminish over time as each premium is paid out against it. Therefore, once the cash value is completely depleted, the policy can no longer sustain itself, which results in termination of the policy. This is crucial for policyholders to understand, as it emphasizes the importance of managing the cash value and recognizing the long-term implications of relying solely on borrowed funds to maintain the policy.

The automatic premium loan option is a feature in many life insurance policies that allows the insurer to use the policy's cash value to pay for premiums that are not paid by the policyholder. If an insured consistently relies on this option to cover premiums, the cash value will gradually diminish over time as each premium is paid out against it.

Therefore, once the cash value is completely depleted, the policy can no longer sustain itself, which results in termination of the policy. This is crucial for policyholders to understand, as it emphasizes the importance of managing the cash value and recognizing the long-term implications of relying solely on borrowed funds to maintain the policy.