What occurs in an Automatic Premium Loan situation?

In an Automatic Premium Loan situation, the policy remains in force despite non-payment of premium. This feature is a safeguard within some whole life insurance policies. When a policyholder fails to pay a premium by the end of the grace period, the insurer automatically uses the policy's cash value to cover the payment. This prevents the policy from lapsing and allows the policyholder to maintain the insurance coverage, effectively using the accumulated cash value as collateral for the loan.

This provision is particularly beneficial for policyholders who might experience temporary financial difficulties, as it ensures that they do not lose their life insurance protection unexpectedly due to a missed payment. While the outstanding premium now becomes a loan against the cash value of the policy, the policyholder doesn't need to worry about the policy lapsing immediately due to non-payment. Instead, it provides a temporary solution that can help maintain the policy in good standing.