Life Insurance Automatic Premium Loan Provision (Terms Explained)
An automatic premium loan provision is a clause included in a cash value life insurance policy that allows the insurance company to take the premium amount out of the policy's cash value if the policyholder doesn't make their payments. This provision ensures a policy doesn't lapse if a policyholder cannot make their payments.
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Brandon Frady
Licensed Insurance Agent
Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...
Licensed Insurance Agent
UPDATED: Jul 31, 2024
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Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Jul 31, 2024
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- An automatic premium loan provision is a clause included in some cash value life insurance policies that allows the insurance company to deduct the premium from the policy’s cash value if the policyholder doesn’t make a payment
- The automatic premium loan provision is designed to prevent a policy from lapsing due to nonpayment
- If you take advantage of an automatic premium loan, you must either repay the loan or have it withdrawn from your death benefit before the company pays your beneficiaries
Permanent life insurance policies are typically issued with multiple riders and provisions that specify the details of the policy. One such provision is the automatic premium loan provision which protects policyholders from lapsing on their policy due to nonpayment of their premiums.
Read more below about how the automatic premium loan provision works with a cash value life insurance policy.
If you’d like to compare cash value life insurance policies with automatic premium loan provisions, enter your ZIP code into our free quote comparison tool above.
What is an automatic premium loan provision?
An automatic premium loan provision is an aspect of a life insurance policy that allows the life insurance company to automatically withdraw the premium amount from the value of the policy to prevent the policy from lapsing due to nonpayment. There is generally an automatic premium loan provision grace period — such as 60 days — before the premiums are deducted from the value of the policy.
In general, automatic premium loan provisions are included in life insurance policies with a cash value. Cash value life insurance is a type of permanent life insurance that includes cash value savings, which the policyholder can use either as a loan or to pay premiums.
Therefore, any cash value life insurance policyholder can choose to pay their premiums with the cash value from their policy. However, an automatic premium loan provision is helpful in situations where the policyholder either can’t contact — or chooses not to notify — the life insurance company, because the insurance company has the authority to withdraw the premiums from the cash value each time without approval.
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Understanding the Automatic Premium Loan Provision in Life Insurance
The automatic premium loan provision can be accurately described as a safety net for policyholders who might occasionally miss their premium payments. An automatic premium loan provision is designed to ensure that the policy remains active by borrowing against the policy’s cash value to cover the missed premium. This automatic premium loan option is especially beneficial in whole life insurance policies, where it acts as a nonforfeiture option, preventing the policy from lapsing. The automatic premium loan rider is automatically included in many life insurance policies, adding an extra layer of security for the policyholder. At what point would an automatic premium loan be generated? It occurs when a premium is overdue, and the policy has sufficient cash value to cover the payment.
The Mechanics and Benefits of Automatic Premium Loans
The automatic premium loan provision authorizes an insurer to withdraw from a policy’s cash value the amount of the due premium, ensuring continuous coverage. A policyowner with an automatic premium loan provision must be aware of the accumulating loan interest, which could affect the policy’s cash value over time. This provision in a whole life policy that allows for such automatic loans can be crucial in maintaining coverage during financial difficulties. A provision that allows the policyholder to withdraw funds for premium payments, like the auto premium loan, helps in managing the policy effectively. While the automatic premium loan in insurance is generally seen as a positive feature, its benefits and implications should be fully understood. The automatic policy loan is a practical tool for policyholders, ensuring their policy remains in force even when premiums are missed. This mechanism, as seen in automatic premium loan in life insurance policies, provides a vital safeguard, especially in policies from companies like Great Eastern, highlighting why automatic premium loan is a good common sentiment among policyholders.
Activation and Function of Automatic Premium Loan Provisions
The automatic premium loan provision is activated at the end of the premium grace period when a policyholder has failed to make a premium payment. This critical feature ensures that the life insurance policy does not lapse due to missed payments. The automatic premium loan provision authorizes an insurer to withdraw the amount of the overdue premium from the policy’s cash value. This automatic loan provision acts as a safeguard, keeping the policy in force by utilizing the accumulated cash value.
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Managing Loans in Life Insurance Policies
For policyholders considering a State Farm life insurance loan, the automatic premium loan provision is a valuable feature that can prevent policy lapse. Similarly, Gerber life insurance loans offer the same advantage, allowing policyholders to borrow against their policy’s cash value. The loan insurance premium is essentially paid by the borrowed amount, ensuring the policy remains active. The automatic premium loan provision authorizes the insurer to automatically cover any missed premiums by utilizing the cash value, thus protecting the policyholder from unintended lapses. This feature is crucial for maintaining continuous life insurance coverage and managing the financial aspects of premium payments effectively.
How does an automatic premium loan provision work?
As mentioned above, an automatic premium loan provision is added to a cash value life insurance policy. The premiums that you pay for a cash value life insurance policy go toward the cash value. Some policies will also allow you to pay as much or as little as you would like to contribute toward the cash value of the policy.
The cash value is above and beyond the face value of the amount. Therefore, if you buy a policy with a $250,000 death benefit, that is the nominal value of the amount, but you can also contribute to a cash value account in addition to the death benefit amount.
Policyholders can elect to borrow against the cash value of the policy, withdrawing it to use for large purchases and necessary expenses. However, the amount that they borrow (plus interest) must be repaid; otherwise, it will be deducted from the death benefit amount when the policyholder passes away.
However, if the premiums remain unpaid, then the policyholder may not be able to borrow against the cash value. And the policy may even lapse, causing them to lose coverage. Therefore, if a policy includes an automatic premium loan provision, the life insurance company has the ability to withdraw the premium from the cash value to cover the policy and prevent it from lapsing.
With that being said, the policyholder must pay back any premiums that are withdrawn from the cash value using the automatic premium loan. If they don’t, it works the same as any other cash value loan which would need to be repaid using the death benefit upon their death.
What is an example of an automatic premium loan provision?
Suppose that Sue has a cash value life insurance policy with an automatic premium loan provision. Her monthly premium is $40 per month, which is comparable to some of the average rates for whole life insurance listed below:
Whole Life Insurance Average Monthly Rates for a Female with $100,000 in Coverage
| Companies | Age 50 Rates | Age 55 Rates | Age 60 Rates | Age 65 Rates |
|---|---|---|---|---|
| AAA | $15 | $19 | $26 | $38 |
| Accordia Life | $42 | N/A | $101 | N/A |
| AIG | $15 | $21 | $26 | $45 |
| Assurity | $17 | $23 | $33 | $50 |
| Foresters Financial | $13 | $17 | $25 | $34 |
| Liberty Mutual | $33 | $39 | $60 | $81 |
| MassMutual | $15 | $20 | $28 | $43 |
| Mutual of Omaha | $17 | $22 | $29 | $47 |
| Prudential | $21 | $24 | $29 | $41 |
| State Farm | $23 | $30 | $41 | $60 |
| TransAmerica | $17 | $26 | $37 | $60 |
We’ll also show you the average whole life insurance rates for males:
Whole Life Insurance Average Monthly Rates for a Male with $100,000 in Coverage
| Companies | Age 50 Rates | Age 55 Rates | Age 60 Rates | Age 65 Rates |
|---|---|---|---|---|
| AAA | $18 | $23 | $37 | $60 |
| Accordia Life | $17 | $23 | $56 | $154 |
| AIG | $17 | $27 | $38 | $55 |
| Assurity | $20 | $28 | $44 | $67 |
| Foresters Financial | $15 | $21 | $34 | $44 |
| Liberty Mutual | $40 | $55 | $96 | $142 |
| MassMutual | $17 | $24 | $36 | $62 |
| Mutual of Omaha | $19 | $28 | $42 | $60 |
| Prudential | $22 | $28 | $38 | $58 |
| State Farm | $27 | $34 | $52 | $83 |
| TransAmerica | $20 | $30 | $43 | $71 |
Suppose Sue experiences some unexpected expenses for her home, and she has difficulty making the payments on her life insurance for a few months. During the months that she is unable to meet her premium payments, the insurance company withdraws the premiums from the cash value of her policy to ensure that the policy doesn’t lapse.
After a few months, Sue begins making her premium payments again. And she also starts slowing repaying the loan that was used with the policy loan provision to cover her policy when she couldn’t. (If she didn’t finish paying back the loan before her death, the insurance company would withdraw it from the death benefit before paying her beneficiaries.)
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Should I buy life insurance with an automatic premium loan provision?
Overall, an automatic premium loan provision may be a good clause to have included in your life insurance policy. If you ever run into financial difficulties and are unable to make your premium payments, the automatic premium loan provision could save you from a lapsed policy.
In addition, taking a loan out against your policy is easy and more affordable than other loans. You won’t need to endure a credit approval process, and the interest rates are typically lower than those of traditional loans. You also won’t be expected to pay it back by a certain date or within a certain number of payments. However, keep in mind that the loan will continue to grow interest if you let it sit.
If you would like to purchase a cash-value life insurance policy with an automatic premium loan provision, enter your ZIP code into our free quote comparison tool below to find affordable life insurance near you.
Case Studies: The Benefits of Automatic Premium Loan Provision in Cash Value Life Insurance Policies
Case Study 1: Saving a Policy From Lapse
John, a policyholder, faced financial difficulties and was unable to make premium payments on his cash-value life insurance policy for several months. Fortunately, his policy included an automatic premium loan provision.
The insurance company automatically withdrew the premiums from the cash value, ensuring that John’s policy did not lapse. Once John’s financial situation improved, he resumed making premium payments and started repaying the loan.
Case Study 2: Unexpected Expenses
Sarah, another policyholder, encountered unexpected expenses related to her home and struggled to pay her life insurance premiums. With the automatic premium loan provision in her policy, the insurance company stepped in to cover the premiums from the cash value.
Sarah eventually regained financial stability and resumed regular premium payments, including repayment of the loan.
Case Study 3: Flexibility in Premium Payments
Mark, a policyholder with a cash-value life insurance policy, appreciated the flexibility provided by the automatic premium loan provision. When faced with varying financial circumstances, Mark chose to pay his premiums using the cash value from his policy.
This option allowed him to maintain coverage during times of financial strain without risking a policy lapse.
Frequently Asked Questions
What is a life insurance automatic premium loan provision?
The automatic premium loan provision is a feature commonly found in life insurance policies. It allows the policyholder to borrow money from the insurance company to pay the premium if they are unable to make the payment themselves. This provision ensures that the policy remains in force even if the premium is not paid on time.
How does the automatic premium loan provision work?
If the policyholder fails to pay the premium within the grace period specified in the policy, the insurance company will automatically lend them the necessary funds to cover the premium amount. This loan is secured by the policy’s cash value and accrues interest over time. The loaned amount, including any interest, is deducted from the policy’s cash value.
Is the automatic premium loan provision mandatory in all life insurance policies?
No, the automatic premium loan provision is not mandatory in all life insurance policies. Its inclusion depends on the terms and conditions of the specific policy and the insurance company offering it. Some policies may offer it as an optional rider or as a standard feature.
What are the benefits of the automatic premium loan provision?
The automatic premium loan provision offers several benefits, including:
- Policy Continuation: It ensures that the life insurance policy remains in force even if the policyholder is unable to make a premium payment on time.
- Convenience: It eliminates the need for the policyholder to manually request a loan or make alternative arrangements to pay the premium.
- Preserving Coverage: It prevents the policy from lapsing, which can be critical if the insured person’s health has deteriorated or if obtaining new coverage is difficult or costly.
Are there any costs or fees associated with the automatic premium loan provision?
Yes, borrowing through the automatic premium loan provision incurs costs and fees. The insurance company typically charges interest on the loaned amount, which is added to the policy’s outstanding loan balance. The interest rate may vary depending on the policy terms and prevailing market conditions. It’s important to review the policy documentation to understand the specific charges associated with the provision.
If a loan request is for payment of due premiums on the policy, how soon must the insurer issue a loan?
The timeframe within which an insurer must issue a loan for the payment of due premiums varies by policy terms and state regulations. Typically, insurers are required to process and issue the loan within a reasonable period, often within 30 days of receiving the request.
What is an automatic premium loan in an insurance policy?
An automatic premium loan is a provision in some life insurance policies that allows the insurer to automatically pay any overdue premiums by taking a loan against the policy’s cash value, thus keeping the policy in force.
What is the purpose of the automatic premium loan rider?
The purpose of the automatic premium loan rider is to prevent the policy from lapsing due to non-payment of premiums. It ensures that the policy remains active by borrowing from the policy’s cash value to cover the premium payments.
How does insurance distribute the financial consequences of individual losses?
Insurance distributes the financial consequences of individual losses by pooling the premiums paid by all policyholders. The collected funds are used to pay for the losses experienced by any member of the pool, thus spreading the financial burden across a large group.
How may an insurance company classify an accidental death benefit on a life policy?
An insurance company may classify an accidental death benefit as an additional rider to a life insurance policy. This rider provides an extra payout if the insured’s death results from an accident, beyond the standard death benefit of the policy.
How to borrow money from State Farm Life Insurance?
To borrow money from a State Farm life insurance policy, you need to contact State Farm directly or access your policy account online. You will need to complete a loan request form, and the loan amount will be issued against the cash value of your policy.
How to get a loan from Gerber Life Insurance?
To get a loan from Gerber Life Insurance, you should contact their customer service or visit their website to access your policy information. Complete the required loan request form, and the loan will be issued based on the available cash value of your policy.
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
If the insured dies before the loan is paid back, the outstanding loan amount, including any accrued interest, will be deducted from the death benefit paid to the beneficiaries.
Which policy does not have an automatic premium loan provision?
Term life insurance policies do not have an automatic premium loan provision because they do not accumulate cash value. This provision is typically found in whole life and other permanent life insurance policies.
Which life insurance policy would be eligible to include an automatic premium loan provision?
Permanent life insurance policies, such as whole life insurance, are eligible to include an automatic premium loan provision. These policies build cash value over time, which can be borrowed against to pay overdue premiums.
What is the additional premium cost to have the automatic premium loan provision included in a permanent policy?
The automatic premium loan provision is often included in permanent life insurance policies at no additional cost. It is a standard feature provided to help maintain the policy in force by using the cash value to cover unpaid premiums.
What is the automatic premium loan feature designed to do?
The automatic premium loan feature is designed to prevent a life insurance policy from lapsing due to non-payment of premiums. It automatically takes a loan against the policy’s cash value to pay any overdue premiums, ensuring continuous coverage.
What is an automatic premium loan provision?
The automatic premium loan provision is a clause in a life insurance policy that allows the insurer to use the policy’s cash value to pay overdue premiums automatically. This helps keep the policy active even if the policyholder misses a premium payment.
Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage?
The automatic premium loan provision allows an insurer to borrow from the cash value of a policy to pay premiums due and prevent a lapse in coverage.
Which provision may be added to a permanent life policy at no cost that ensures that the policy will not lapse so long as there is cash value?
The automatic premium loan provision may be added to a permanent life policy at no cost to ensure that the policy will not lapse as long as there is cash value.
Which rider would not cause the death benefit to increase?
The automatic premium loan rider would not cause the death benefit to increase, as it is designed to prevent policy lapse by using the policy’s cash value to cover premiums.
Which type of policies may not have the automatic premium loan provision attached to it?
Term life insurance policies may not have the automatic premium loan provision attached to them because they do not accumulate cash value.
Who does the secondary notice provision protect?
The secondary notice provision protects the policyholder by ensuring that a secondary party, such as a family member or trusted friend, is notified before a policy lapses due to missed premium payments.
What is automatic premium loan?
An automatic premium loan is a feature in some life insurance policies that automatically borrows from the policy’s cash value to pay an overdue premium, thereby preventing the policy from lapsing.
What is automatic premium loan in life insurance?
In life insurance, an automatic premium loan is a mechanism that ensures the policy remains in force by using the policy’s cash value to cover missed premium payments.
What is automatic premium loan provision?
The automatic premium loan provision is a clause in a life insurance policy that allows the insurer to use the policy’s cash value to pay overdue premiums, preventing the policy from lapsing.
What is premium loan?
A premium in loan refers to the amount of money borrowed from the cash value of a life insurance policy to pay the overdue premiums under the automatic premium loan provision.
Can you borrow from your AAA life insurance?
Yes, you can borrow from your AAA life insurance policy if it has a cash value component, typically available in whole life or universal life policies.
Can you borrow from your Colonial Life insurance policy?
Yes, you can borrow from your Colonial Life insurance policy if it has accumulated cash value, which is usually found in permanent life insurance policies.
Can you borrow money from your State Farm life insurance policy?
Yes, you can borrow money from your State Farm life insurance policy if it is a whole life or universal life policy with cash value.
Can you borrow from your Prudential life insurance?
Yes, you can borrow from your Prudential life insurance policy if it is a permanent life insurance policy that has built up cash value.
Can you borrow money from your Gerber life insurance?
Yes, you can borrow money from your Gerber life insurance policy if it is a whole life policy that has accumulated cash value.
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Brandon Frady
Licensed Insurance Agent
Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
