If the Automatic Premium Loan (APL) is used, what will happen upon death or surrender of the policy?

When an Automatic Premium Loan (APL) is utilized, it essentially means that the insurer has advanced a loan to cover the premium payment when the policyholder has not made their payment. This loan is secured by the cash value of the policy.

Upon the death of the policyholder or if the policy is surrendered, the amount of the outstanding loan will be deducted from the death benefit or the cash surrender value. This means that the insurer will subtract the loan amount from the total payout. Therefore, if a policyholder has a significant loan against their policy when they pass away, the beneficiaries will receive less than the full face value of the policy because the loan has to be repaid first.

This reflects the nature of how APL works in conjunction with the overall structure of life insurance policies, where loans taken against the cash value affect the financial benefits available to the policyholder's heirs or during policy surrender.