Connecticut Life Producer Practice exam

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What is the purpose of the Automatic Premium Loan provision?

To enhance cash value of the policy
To prevent lapse of the policy due to missed premium payments
To allow changes in premium amounts without penalties
To simplify the claim process for beneficiaries

The correct answer is: To prevent lapse of the policy due to missed premium payments

The purpose of the Automatic Premium Loan provision is to prevent the lapse of a life insurance policy due to missed premium payments. This provision is designed to provide a safety net for policyholders who may inadvertently forget to pay their premiums on time or face financial difficulties. When a premium payment is not made by the end of the grace period, the insurer automatically takes a loan against the cash value of the policy to cover the missed premium. This feature ensures that the policy remains in force, thus maintaining the life insurance coverage for the insured. It is particularly beneficial because it allows policyholders to avoid losing their coverage during times when they might be financially strained. By safeguarding the policy from lapsing, the Automatic Premium Loan provision provides both security and peace of mind to the policyholder and their beneficiaries.