Rhode Island Life Insurance Practice Exam

If S has a Whole Life policy with a premium payment due soon, which provision would keep the policy in force if S does not make the required payment?

1. Grace Period Provision

2. Automatic Policy Loan

3. Extended Term Provision

4. Nonforfeiture Option

The correct answer is: Automatic Policy Loan

The correct answer is the Automatic Policy Loan provision. This provision allows the insurance company to automatically take a loan against the policy's cash value to cover the payment of the premium if the policyholder does not make the required payment by the due date. As a result, the policy remains in force, preventing lapsation due to non-payment. A Whole Life policy typically accumulates cash value over time, and the Automatic Policy Loan feature taps into this cash value. Therefore, if the premium is not paid, this provision ensures the policyholder maintains coverage without needing to actively manage the premium payment during the grace period. The other options do offer valuable benefits, but they do not specifically address the immediate scenario of ensuring coverage without a premium payment. For instance, the Grace Period Provision allows for a period after the premium due date during which the policy remains in force, but it does not address a scenario where the premium is not paid at all. The Extended Term Provision allows the policyholder to use the cash value to convert the policy to term insurance for a limited period if the policy lapses; however, this is a different mechanism than ensuring ongoing coverage through an automatic loan. Similarly, Nonforfeiture Options are alternatives available to a policyholder if they choose to