Texas Life Agent Practice Exam

A rider that prevents a policy from lapsing due to non-payment by borrowing from the cash value is known as what?

1. Waiver of premium

2. Automatic premium loan

3. Reinstatement rider

4. Payment deferral rider

The correct answer is: Automatic premium loan

The correct answer is the automatic premium loan, which is a feature that ensures a life insurance policy does not lapse due to non-payment of premiums. If the policyholder fails to make a premium payment, the insurer can automatically borrow from the policy’s cash value to cover the premium, thereby keeping the policy active. This feature provides policyholders with an added layer of protection and convenience, allowing them to maintain their insurance coverage even during financial difficulties. The automatic premium loan is particularly beneficial because it prevents the policy from lapsing, which could lead to the loss of coverage and associated benefits. It’s important to understand that while this option can help keep the policy in force, any amount borrowed will accrue interest and reduce the death benefit if not paid back. The other options, while related to policy benefits, do not serve the same purpose. The waiver of premium allows the insured to skip premium payments under certain conditions, usually related to disability, but does not involve borrowing from the cash value. A reinstatement rider provides a way to reactivate a lapsed policy after a period, but it does not prevent a lapse in the first place by borrowing against cash value. Lastly, a payment deferral rider allows for a delay in payment but does not utilize the cash