(Which one of the following statements about the automatic premium loan provision in a life...

The automatic premium loan provision is an optional feature found in many cash value life insurance policies. Its purpose is to prevent a policy from lapsing when the policyowner fails to pay a premium by the end of the grace period. If the policy has sufficient cash value, the insurer will automatically issue a policy loan in the amount needed to cover the overdue premium. This loan is secured by the policy’s cash value and accrues interest according to the policy’s loan terms. Over time, unpaid loan balances and interest may reduce the policy’s cash value and death benefit. This provision differs from a waiver of premium, which waives premiums due to disability, and from options that purchase additional insurance. The automatic premium loan simply uses the policy’s existing value to keep coverage in force.