Final answer:
The process of subtracting a loan's interest rate from a dividend paid from an insurance policy used as collateral is called an automatic premium loan provision.
Step-by-step explanation:
When an insurer subtracts the interest rate of an outstanding loan from the amount of the dividend paid out from the insurance policy used as collateral on the loan, it is called automatic premium loan provision.
In essence, when the policy dividend is not enough to cover the interest or premium, the insurer will reduce the outstanding loan balance by the dividends payable. This is often seen in life insurance policies where the cash value can be borrowed against, and dividends are used to offset the loan interest.