Tennessee Insurance Practice Exam

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Which of these types of policies may not have the automatic premium loan provision attached to it?

Whole Life
Universal Life
Term Life
Decreasing Term

The correct answer is: Decreasing Term

The automatic premium loan provision is typically associated with whole life policies. It allows an insurer to automatically use the cash value of the policy to pay premiums that are not paid by the policyholder, thus keeping the policy in force even if premiums are missed. Term life insurance policies, including decreasing term, do not generally have accumulating cash value and therefore operate differently than permanent life insurance policies. The purpose of a term policy is to provide coverage for a specified period without the investment component that would generate cash value to be borrowed against. Decreasing term life policies have benefits that decrease over time and are sometimes used for specific financial obligations like mortgages, and they also lack any cash value component. Given this context, the lack of cash value is why the automatic premium loan provision is not applicable to decreasing term life insurance policies, making it the correct choice in the context of this question.