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Funds owing under life insurance policies. (Effective until January 1, 2023.)(1) Funds held or owing under any life or endowment insurance policy or annuity contract that has matured or terminated are presumed abandoned if unclaimed for more than three years after the funds became due and payable as established from the records of the insurance company holding or owing the funds, but property described in subsection (3)(b) of this section is presumed abandoned if unclaimed for more than two years. (2) If a person other than the insured or annuitant is entitled to the funds and an address of the person is not known to the company or it is not definite and certain from the records of the company who is entitled to the funds, it is presumed that the last known address of the person entitled to the funds is the same as the last known address of the insured or annuitant according to the records of the company. (3) For purposes of this chapter, a life or endowment insurance policy or annuity contract not matured by actual proof of the death of the insured or annuitant according to the records of the company is matured and the proceeds due and payable if: (a) The company knows that the insured or annuitant has died; or (b)(i) The insured has attained, or would have attained if he or she were living, the limiting age under the mortality table on which the reserve is based; (ii) The policy was in force at the time the insured attained, or would have attained, the limiting age specified in (b)(i) of this subsection; and (iii) Neither the insured nor any other person appearing to have an interest in the policy within the preceding two years, according to the records of the company, has assigned, readjusted, or paid premiums on the policy, subjected the policy to a loan, corresponded in writing with the company concerning the policy, or otherwise indicated an interest as evidenced by a memorandum or other record on file prepared by an employee of the company. (4) For purposes of this chapter, the application of an automatic premium loan provision or other nonforfeiture provision contained in an insurance policy does not prevent a policy from being matured or terminated under subsection (1) of this section if the insured has died or the insured or the beneficiaries of the policy otherwise have become entitled to the proceeds thereof before the depletion of the cash surrender value of a policy by the application of those provisions. (5) If the laws of this state or the terms of the life insurance policy require the company to give notice to the insured or owner that an automatic premium loan provision or other nonforfeiture provision has been exercised and the notice, given to an insured or owner whose last known address according to the records of the company is in this state, is undeliverable, the company shall make a reasonable search to ascertain the policyholder's correct address to which the notice must be mailed. (6) Notwithstanding any other provision of law, if the company learns of the death of the insured or annuitant and the beneficiary has not communicated with the insurer within four months after the death, the company shall take reasonable steps to pay the proceeds to the beneficiary. (7) Commencing two years after June 30, 1983, every change of beneficiary form issued by an insurance company under any life or endowment insurance policy or annuity contract to an insured or owner who is a resident of this state must request the following information: (a) The name of each beneficiary, or if a class of beneficiaries is named, the name of each current beneficiary in the class; (b) The address of each beneficiary; and (c) The relationship of each beneficiary to the insured. An insurance policy provision that allows the insurer to automatically deduct the premium amount overdue from the policy value What is an Automatic Premium Loan?An automatic premium loan is a provision in a life insurance policy that allows the insurer to automatically deduct the premium amount overdue from the policy value whenever the policyholder is unable – or neglects – to pay the premium. The insurance issuer makes a loan against the policy’s cash value for paying the overdue premiums provided the cash value is more than or equal to the premium amount due.  Summary
Obtaining an Automatic Premium LoanWhen a policyholder takes out life insurance with cash value, the premium payments add to what is known as a cash surrender value. As the accumulated cash belongs to the policyholders, there is no need for a credit application or loan collateral for borrowing against the cash value policy. The policyholder can borrow against the cash surrender value, and life insurance policies may include a clause according to which the insurance companies can automatically deduct premium amounts from the cash value in the event of non-payment of the premium. The automatic premium loan is usually an optional clause of the life insurance policies. The clause minimizes the risk of an insurance policy becoming lapsed due to neglected payments. The policy’s face value is not affected by the automatic premium loan. However, it accumulates interest similar to other loans. In the event of the death of the policyholder before he/she pays the automatic premium loan or due to any other reason if the policy with an outstanding loan gets canceled, the full loan amount and interest will be subtracted from the insurance payout. Practical ExampleAssume that you take out a life insurance policy, and the automatic premium loan clause provides your insurance issuer with an option to deduct $600 from the accumulated cash value of your policy. Suppose that you forgot to make a premium payment on the scheduled date. According to the clause of the automatic premium plan, your insurer will reduce the cash value, which will cover the premium amount. Thus, your policy will not terminate due to the missed payment and will continue as normal. Benefits of an Automatic Premium LoanThe provision of an automatic premium loan benefits both the insurance issuer and the policyholder. The insurer can collect premiums regularly and automatically. They do not need to send multiple notices to the policyholders for payment of premiums. In addition, the policyholders can continue their coverage even if they miss out on premium payments. The automatic premium loan clause is exercised when the premium payments are overdue. The policyholder can choose a scheduled date for regular payments of insurance premiums. However, if he/she does not pay the premiums – even within the grace period – the insurance companies will then deduct the premium amounts from the cash value of his/her policy. Thus, the life insurance policy is prevented from being lapsed. The insurance issuers inform the policyholders in case the automatic premium loan arrangement is utilized. Drawbacks of an Automatic Premium LoanSimilar to any other standard loan, an automatic premium loan carries an interest. Therefore, the policyholder has to pay back the amount of the loan and the interest amount as well. Also, when a policyholder borrows against the policy’s cash value, the death benefit from the life insurance component may reduce. The cash value may subsequently reduce to zero if the policyholder continues to take loans to pay insurance premiums. In such a case, the policy terminates, as there is no value left against which a loan can be taken. More Resources CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
Which policy does not have an automatic premium loan provision?What Policies Do Not Have an APL Provision? An automatic premium loan provision only applies to whole life insurance policies. Universal life policies do not have an APL provision because premiums are flexible and policy expenses are always deducted from available cash value.
What type of life insurance policy may not have the automatic premium loan provision attached to it?Automatic premium loans can only be made from permanent policies that have a cash-value component. These include whole life policies and some universal life (UL) policies. Because universal life policies deduct expenses from the cash value, they do not always allow ALP.
Which of the following policies would not have a policy loan provision quizlet?Since right life only pays one death benefit ( at the first death ) it's premium is less than the total of two individual policies. Which of the following Policies would not offer a policy loan option? The policy loan option is only found in policies that contain cash value. Term life policies do not have cash value.
What is the automatic premium loan provision?Automatic Premium Loan: A provision in a life insurance policy that any premium not paid by the end of the grace period (usually 31 days) is automatically paid by a policy loan if there is sufficient cash value.
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Which type of policy may not have the automatic premium loan provision attached to it?
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