What is an Automatic Premium Loan?
An automatic premium loan is a provision in a life insurance policy that allows the insurer to automatically deduct the premium amount overdue from the policy value whenever the policyholder is unable – or neglects – to pay the premium. The insurance issuer Life and Health Insurers Life and health (L&H) insurers are companies that provide coverage on the risk of loss of life and medical expenses incurred from illness or injuries. The customer – the purchaser of the insurance policy – pays an insurance premium for the coverage. makes a loan against the policy’s cash value for paying the overdue premiums provided the cash value is more than or equal to the premium amount due.
- An automatic premium loan is a feature of cash-value life insurance policies; hence, policyholders need to take out such policies to be able to obtain automatic premium loans.
- The cash value of a policy is in addition to the face value of the policy. A life insurance policyholder may take a loan against his/her policy’s cash value.
- Automatic premium loans can be borrowed only if the policy’s cash value is equal to or more than the overdue premium amount.
Obtaining an Automatic Premium Loan
When a policyholder takes out life insurance with cash value, the premium payments add to what is known as a cash surrender value. As the accumulated cash belongs to the policyholders, there is no need for a credit application or loan collateral Collateral Collateral is an asset or property that an individual or entity offers to a lender as security for a loan. It is used as a way to obtain a loan, acting as a protection against potential loss for the payday loan stores in Independence lender should the borrower default in his payments. for borrowing against the cash value policy. The policyholder can borrow against the cash surrender value, and life insurance policies may include a clause according to which the insurance companies can automatically deduct premium amounts from the cash value in the event of non-payment of the premium. Continue reading The automatic premium loan is usually an optional clause of the life insurance policies