What does automatic premium loan do?

• A. Deducts unpaid premiums from the policy's cash value if they have not been received by the end of the grace period.
• B. Provides a new policy loan for the insured.
• C. Increases the policy's death benefit automatically.
• D. Extends the grace period by 30 days.

Answer: (A)

Automatic premium loan uses the policy’s available cash value to pay an overdue premium after the grace period ends, so the policy stays in force instead of lapsing. The loan is charged against the cash value and accrues interest, which reduces both the policy’s cash value and the death benefit by the outstanding loan amount. If the cash value is exhausted by loans and interest, the policy could lapse. It does not create a new policy loan on its own, does not automatically increase the death benefit, and does not extend the grace period by a fixed amount of time.