Tennessee Insurance Practice Exam

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Study for the Tennessee Insurance Exam. Prepare with a database of questions and flashcards, each offering hints and detailed explanations. Ace your exam confidently!

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What is the primary purpose of the Automatic Premium Loan provision?

To provide a lump-sum payment upon death
To avoid a policy lapse due to non-payment
To allow for policy loans
To increase the death benefit

The correct answer is: To avoid a policy lapse due to non-payment

The Automatic Premium Loan provision primarily serves to prevent a policy from lapsing due to non-payment of premiums. When a policyholder fails to pay their premium on time, this provision automatically borrows the necessary amount from the cash value of the policy to cover the premium payment. This helps maintain the coverage and ensures that the policy remains in force, even if the policyholder is temporarily unable to make a payment out-of-pocket. This provision is particularly beneficial for policyholders who may experience financial difficulties, as it provides a safety net that helps preserve their insurance coverage without requiring immediate payment.