California Insurance License Exam Practice Test Practice Question
What is the purpose of the automatic premium loan provision?
Correct Answer: B
Rationale: The automatic premium loan provision is designed to prevent an unintentional lapse of the policy by automatically using available cash value to cover unpaid premiums. This ensures that the policy remains active even if premiums are not paid on time.
Option A is incorrect as extending the grace period does not involve automatic loans. Option C is misleading; while cash values may be used, the provision itself does not create additional cash values. Option D is also incorrect; the provision does not activate nonforfeiture options but rather maintains the policy by covering premiums.
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