There are many passengers, provisions and features that can be added to permanent insurance. The automatic premium credit (APL) provision is one of the lesser known, but very valuable provisions available to the policyholder for life. This provision prevents the policyholder from terminating the insurance contract due to an omission or delay in paying premiums. This article details what APL provisions are, how they work, what policies can apply and what policyholders need to know.
What is a Automatic Premium Loan?
An automatic premium loan (APL) is an insurance clause that allows the insurer to deduct the unpaid amount from the value of the premium when the premium payment deadline occurs.
Automatic loan premium coverage is most often associated with cash value life insurance, such as life insurance, and allows the policy to run continuously rather than being terminated due to non-payment of premium.
How does the Automatic Premium Loan work?
As mentioned above, premium auto loan provisions are added to the cash value life insurance. The premium you pay on your cash value life insurance is transferred to the cash value. Some policies may also pay as much or as little as you want to contribute to the cash value of the policy.
The cash value exceeds the face value of the amount. Thus, if you are insured for a $250,000 death benefit, the face value of that amount would be, but in addition to the death benefit amount, you can also contribute to the cash value account.
Policyholders may choose to credit based on the cash value of the insurance policy for use in bulk purchases and necessary expenses. However, the amount you borrow (including interest) must be repaid or it will be deducted from the policyholder’s death benefit.
However, if the premium remains unpaid, the insured may not be able to get credit for the cash amount. And this policy may even go into effect, causing them to lose coverage. Consequently, if the insurance includes automatic credit for premiums, the life insurer can take the premiums out of the cash value to cover the premiums and prevent them from being repaid.
Thus, the insured must use the automatic premium credit to repay all premiums taken out of cash value. If not, it works the same as other cash loans that must be repaid using the death benefit.
Get Automatic Premium Loan
When you sign up for a cash value life insurance policy, the premium payment is added to what’s called the cash back value. The earned cash back comes from the policyholder, so no loan applications or loan collateral is required for a cash value policy. The policyholder can borrow against the cash withdrawal amount, and the life insurance policy can include a provision that allows the insurer to automatically deduct the premium from the cash value if the premium is not paid.
Premium auto loans are usually optional life insurance provisions. This provision minimizes the risk that the insurance will be canceled due to negligence in paying the premiums. The face value of a premium auto loan is not affected. However, interest accrues just as it does on other loans.
If the insured dies before the automatic loan premium is paid, or if insurance on an outstanding loan is terminated for other reasons, the loan amount and interest will be fully deducted from the insurance payment.
What types of life insurance may include Automatic Premium Loan?
Premium auto loans are only available on permanent policies with cash value elements. This includes whole life policies and some Universal Life (UL) policies. Universal life insurance policies do not always allow for ALP because they deduct costs from the cash value.
Do I need to sign up for Automatic Premium Loan?
In general, the terms of a premium auto loan may be a good condition to include life insurance. If you’re struggling financially and can’t pay your premiums, the terms of a Premium Auto Loan can save you from an effective policy.
In addition, getting a loan secured against your policy is easy and less expensive than other loans. You won’t have to go through the loan approval process, and the interest rate is usually lower than traditional loans. Also, you are not expected to pay the money back until a certain date or within a certain number of payments. Keep in mind, however, that if you default on the loan, the interest will continue to rise.
If you want to take out cash value life insurance with automatic premium credit offers, enter your zip code in the free price comparison tool below to find affordable life insurance near you.
Which policies don’t have APL coverage?
The provision of a premium auto loan only covers life insurance. Universal Life policies do not have APL provisions because premiums are flexible and policy costs are always deducted from the available cash value. Term life insurance has no such provision because most term insurance does not create a cash value.
Disadvantages of Automatic Premium Loan.
Like other standard loans, premium auto loans also carry interest. Consequently, the insured must also repay the loan amount and the interest amount. In addition, the death benefit on the life insurance component may be reduced if the insured borrows based on the insured’s cash value.
If the insured continues to receive a loan to pay the premium, the cash value may subsequently be reduced to zero. In this case, the policy expires because there is no value left to receive the loan.