Final answer:
To prevent a life insurance premium lapse, an automatic premium loan or waiver of premium may be used. An automatic premium loan helps cover premiums to prevent policy lapse, while a waiver of premium forgives payments during events like disability. Insurance premiums represent the cost of an insurance policy.
Step-by-step explanation:
To prevent a lapse in the payment of life insurance premiums, one could utilize an automatic premium loan, which is a provision that allows the insurance company to automatically extend a loan to cover the premium if it's not paid by the end of the grace period.
This would prevent the policy from lapsing due to non-payment. Options like a cash loan or partial surrender might provide funds to pay premiums but are not automatic processes specifically meant to handle life insurance premiums. A waiver of premium is another provision that could protect the policyholder by waiving the premium payments in the event that they become disabled and are unable to pay.
An insurance premium is the amount of money that an individual or business must pay for an insurance policy. When someone looking for a loan needs to reassure a bank of repayment despite imperfect information, they might offer collateral, produce a co-signer, or show a strong credit history.
The concept of an actuarially fair premium refers to a premium that accurately reflects the risk of insuring an individual or group, based on statistical analyses.