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Automatic Premium Loan: Meaning, Overview and FAQs

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Photo: Automatic Premium loan Photo: Automatic Premium loan

What is a loan with an automatic premium?

An insurance policy provision known as an automated premium loan (APL) enables the insurer to withdraw an overdue payment from the policy’s value when it becomes due.

The most popular type of cash-value life insurance policy with automatic premium loan features is Whole Life. These provisions keep the policy in effect instead of allowing it to expire for nonpayment of premiums.

Comprehending Loans with Automatic Premium

You must have a cash-value life insurance policy, meaning that each premium you pay increases the policy’s cash value to be eligible for an automatic premium loan. Policyholders of life insurance may be allowed to borrow against the cash value of their approach, according to the terms of the policy. The policyholder may borrow against this accruing cash value, a value over the policy’s face value.
In essence, an automated premium loan is a debt obtained against the insurance, subject to interest. The insurance policy’s cash value may run out if the policyholder keeps paying the premiums this way.

Since there is nothing left to borrow against, the policy will lapse at this point. If an outstanding loan is canceled with the procedure, the loan balance plus interest is subtracted from the policy’s cash value before the value of specific points to remember.

Because the policyholder owns the increasing value, borrowing against it does not require a credit application, loan collateral, or other reasonable faith requirements, usually part of loans. The loan is obtained against the policy’s cash value, and if it is not returned, the remaining loan amount is subtracted from the policy’s cash value. As with a regular loan, the policyholder will be responsible for paying interest.

Both the policyholder and the insurer benefit from automatic premium loan provisions. The policyholder can continue to have coverage even if they forget or cannot send in a check to cover the policy premium, and the insurer can continue to collect periodic tips instead of reminding the policyholder.

Although the policyholder still has the option to pay the premium by the regularly scheduled due date, the unpaid premium amount is subtracted from the policy’s cash value if it is not delivered within a predetermined window of time following the grace period, such as sixty days. By doing this, the policy is kept current. If the policyholder takes advantage of the automated premium loan provision, the insurer will notify them of the transaction. Taken out against an insurance policy, an automated premium loan is nevertheless a loan and has interest associated with it.

Which life insurance policies may have an automatic provision for premium loans?

Loans for automatic premiums are only available for permanent insurance with a cash value component. Whole-life insurance and some universal life (UL) policies are among them. Adaptable life plans may not often permit ALP since they remove expenditures from the cash value.

What Is the Goal of the Automatic Premium Loan Provision?

The purpose of automatic premium loans is to maintain life insurance coverage even if the policyholder fails to make timely premium payments. It’s possible that the policyholder neglected to pay or is having financial or other troubles. In any case, even in these situations, the death benefit is preserved because of the APL clause.

Does an automatic premium loan reduce an insurance policy’s death benefit?

Possibly. If the insured person passes away before the loans are repaid, the amount of the death benefit will be reduced by the amount of unpaid loans plus interest.


  • Overdue premium payments can be settled with the cash value of a permanent life insurance policy through automatic premium loans.
  • As the name suggests, as soon as premium payments are past due for a predetermined period, this will happen automatically.
  • The goal is to prevent a policy from expiring, which would result in the termination of coverage.
  • Due to the payment’s structure as a policy loan, interest will also need to be paid.
  • Only policies with a cash value of at least past-due premiums are eligible for automatic premium loans.

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