PSI Life Exam Practice Test 2025 - Free Life Insurance Exam Questions and Study Guide

The "automatic premium loan" provision is designed to ensure that a policyholder maintains their life insurance coverage even when they might have missed a premium payment. Specifically, this provision allows the insurance company to automatically use the policy's cash value to pay any overdue premiums. This helps to prevent the policy from lapsing due to non-payment, thus maintaining the insurance coverage without requiring the policyholder to take any immediate action.

The mechanism is particularly beneficial for policyholders who may experience temporary financial difficulties but want to preserve their life insurance policy. By automatically covering the unpaid premium with accumulated cash value, it supports the policyholder's long-term insurance needs while providing a safeguard against inadvertent lapses in coverage.

Other options do not accurately reflect the purpose of the automatic premium loan provision. For instance, it doesn't simply allow skipping premium payments, nor does it involve granting an interest-free loan of cash value or providing just a grace period for payment. Each of these would have different implications for the maintenance of the policy and the policyholder's financial obligations.