What happens if the policyholder misses a premium payment, according to the automatic premium loan provision?

The correct answer is that, according to the automatic premium loan provision, the premium is paid using borrowed cash value. This provision is designed to prevent a policy from lapsing if the policyholder fails to make a premium payment on time.

When a policyholder misses a premium payment, the insurance company can utilize the accumulated cash value of the policy to cover the overdue premium. This automatic loan is typically deducted from the cash value of the policy, allowing it to remain in force during the grace period. This is beneficial for policyholders who may experience temporary financial difficulties, as it provides a safety net that prevents the immediate loss of coverage.

The provision also emphasizes the importance of maintaining a cash value in permanent life insurance policies, as it not only provides a resource for loans but also ensures that coverage can continue uninterrupted even when premium payments are missed.