Rhode Island Life Insurance Practice Exam

What ensures that a policy remains active if the policyholder misses a premium payment but has sufficient cash value?

1. Riders

2. Cash Surrender Value

3. Automatic Premium Loan Provision

4. Reduced Paid-Up Option

The correct answer is: Automatic Premium Loan Provision

The correct choice refers to the Automatic Premium Loan Provision, which is a feature included in many permanent life insurance policies. This provision allows the insurer to automatically use the cash value of the policy to cover any missed premium payments. When this occurs, it ensures the policy remains in force, preventing lapsation even if the policyholder forgets or is unable to make a payment on time. This is particularly beneficial as it provides a safety net for policyholders, allowing them to maintain their coverage and the benefits associated with it as long as there is sufficient cash value available. The context of the other choices highlights their different roles in life insurance policies. Riders are add-on benefits that can enhance or modify coverage but do not directly address missed premium payments. Cash surrender value refers to the amount the policyholder would receive if they chose to terminate the policy, and the reduced paid-up option allows the policyholder to stop paying premiums and convert the policy to a paid-up status with reduced death benefits. While these features have their own significance, they do not provide the same mechanism for keeping the policy active after a missed payment as the Automatic Premium Loan Provision does.