Automatic Premium Loan Provision

What Does Automatic Premium Loan Provision Mean?

An automatic premium loan provision is a clause in a whole life insurance policy. It stipulates that if a policyholder fails to make a scheduled premium payment, funds from the policy’s accumulated cash value will be withdrawn and used as a loan to cover the owed premium.

This feature is one of the reasons people choose permanent coverage over term, since whole life policies build a cash value that can be drawn on this way.

Insuranceopedia Explains Automatic Premium Loan Provision

Automatic premium loan provisions benefit both insurers and policyholders. They enable the insurer to collect a premium even when the policyholder is unable to make a payment, while also allowing the policyholder to maintain their coverage instead of having the policy canceled due to a missed payment.

It’s also worth keeping in mind when you compare the cost of a whole life policy, because the higher premiums you pay into permanent coverage are what fund the cash value cushion in the first place.

Policyholders may miss payments for various reasons, such as illness, injury, or simple forgetfulness. However, as long as the policy includes an automatic premium loan provision, a missed premium should not result in the policy being voided.