Can you explain the ‘automatic premium loan’ clause?

An automatic premium loan (APL) clause is a provision in a life insurance policy that allows the insurer to automatically take a loan from the policy's cash value to pay the premium if the policyholder fails to make a premium payment when it is due. This means that if the policyholder misses a premium payment, the insurer will automatically use the policy's cash value to pay the premium and keep the policy in force. The APL clause is typically found in whole life, universal life, and variable universal life insurance policies. The clause can be beneficial to policyholders who might forget to make a premium payment, as it ensures that the policy will not lapse due to a missed payment. However, it is important to note that the automatic premium loan will accrue interest, which means that the policyholder will owe the insurer more money than just the missed premium payment. The interest rate on the loan is typically lower than the interest rate charged on a credit card or personal loan, but it can still add up over time. If the policyholder does not repay the loan, the amount borrowed plus interest will be deducted from the death benefit paid to the beneficiary upon the policyholder's death. It is important for policyholders to understand the terms of the automatic premium loan clause and to ensure that they are able to repay any loans taken out by the insurer to prevent a reduction in the death benefit.