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Question 1Principles of Insurance and Risk Management

In insurance terms, what does 'risk' most precisely refer to?

  1. The legal contract between insurer and insured
  2. The uncertainty about the occurrence of a loss Correct answer.
  3. The physical asset named in the policy
  4. The premium paid to transfer exposure

Explanation

In risk management and insurance, risk means uncertainty regarding the possibility of loss. It is distinct from the premium, the contract, and the insured property, which are mechanisms or objects connected to handling that uncertainty.

Question 2Principles of Insurance and Risk Management

A factory installs automatic sprinklers and fire-resistant storage. These measures are best classified as which risk management technique?

  1. Risk avoidance
  2. Risk transfer
  3. Risk reduction (loss control) Correct answer.
  4. Risk retention

Explanation

Loss control measures reduce the frequency or severity of a potential loss, so sprinklers and fire-resistant storage are risk reduction. Avoidance would mean eliminating the activity, retention means bearing the loss, and transfer means shifting it to another party.

Question 3Principles of Insurance and Risk Management

Which characteristic must an insurable risk generally display?

  1. The loss must be accidental and measurable Correct answer.
  2. The exposure must affect only one individual
  3. The loss must be intentional on the part of the insured
  4. The loss must be certain to occur in the policy period

Explanation

Insurable risks are typically accidental, definite and measurable in money, and outside the insured's control. Intentional acts and certain losses are generally excluded because insurance addresses fortuitous events.

Question 4Principles of Insurance and Risk Management

What is the primary function of an insurance premium?

  1. To serve as a deposit refundable at policy expiry
  2. To represent the market value of the insured property
  3. To fund the pool from which claims and expenses are paid Correct answer.
  4. To guarantee that no claim will ever be denied

Explanation

Premiums collected from many policyholders form a fund used to pay claims and cover operating costs. The premium is not a refundable deposit, nor does it equal the property value or guarantee claim payment.

Question 5Principles of Insurance and Risk Management

A person who suffers a loss due to a peril insured against under a policy is generally described as which party?

  1. The insured Correct answer.
  2. The insurer
  3. The beneficiary of the insurer's trust fund
  4. The underwriter

Explanation

The insured is the party whose exposure is covered and who may claim for a covered loss. The insurer assumes the risk, the underwriter assesses it, and any trust fund language refers to the insurer's reserves.

Question 6Principles of Insurance and Risk Management

Which of the following best describes 'peril'?

  1. The amount the insurer will pay for a claim
  2. The chance that a loss will occur
  3. The cause of a possible loss, such as fire or theft Correct answer.
  4. The condition that increases the severity of a loss

Explanation

A peril is the actual cause of loss, such as fire, flood or theft. It is distinguished from hazard, which is a condition increasing the chance or severity of loss, and from risk, which is the uncertainty itself.

Question 7Principles of Insurance and Risk Management

What does the principle of indemnity aim to achieve?

  1. To restore the insured financially to approximately the pre-loss position Correct answer.
  2. To allow the insured to profit from a loss
  3. To guarantee replacement with new items in every case
  4. To punish the party who caused the loss

Explanation

Indemnity places the insured back in roughly the same financial position as before the loss, no better and no worse. It prevents profit from insurance and is why sums insured and market values matter.

Question 8Principles of Insurance and Risk Management

An applicant knowingly conceals a material fact when completing a proposal form. Which principle is most directly engaged?

  1. Proximate cause
  2. Subrogation
  3. Utmost good faith Correct answer.
  4. Contribution

Explanation

Insurance contracts require utmost good faith, meaning material facts must be disclosed honestly. Concealment of a material fact breaches that duty and may allow the insurer to avoid the contract.

Question 9Principles of Insurance and Risk Management

An insurer pays a claim for water damage caused by a burst pipe, then recovers the amount from the negligent contractor who damaged the pipe. This recovery right is called:

  1. Contribution
  2. Reinstatement
  3. Salvage
  4. Subrogation Correct answer.

Explanation

Subrogation allows the insurer, after indemnifying the insured, to step into the insured's shoes and pursue recovery from the responsible third party. Contribution involves multiple insurers, salvage involves disposal of damaged property, and reinstatement is a repair basis of claim settlement.

Question 10Principles of Insurance and Risk Management

Two property policies both cover the same building on the same risk. How does the principle of contribution operate?

  1. Each insurer pays the full sum insured regardless of overlap
  2. Insurers share the loss in proportion to the amounts they cover Correct answer.
  3. The insurer that issued the later policy pays the entire claim
  4. The insured may choose one insurer and ignore the other

Explanation

Contribution prevents double recovery by requiring insurers covering the same interest to share the loss, usually in proportion to their respective sums insured. The insured cannot recover more than the actual loss.

Question 11Principles of Insurance and Risk Management

A fire is caused by an earthquake, and the policy excludes earthquake but covers fire. Which doctrine helps determine whether the fire loss is payable?

  1. Insurable interest
  2. Utmost good faith
  3. Proximate cause Correct answer.
  4. Average clause

Explanation

Proximate cause identifies the dominant, effective cause of a loss in a chain of events. If the proximate cause is an excluded peril, the loss is not payable even if a covered peril also contributed.

Question 12Principles of Insurance and Risk Management

Which situation demonstrates that an insured lacks insurable interest in a property policy?

  1. A bank insuring a house against which it holds a mortgage
  2. A passer-by insuring a stranger's car parked on the street Correct answer.
  3. A company insuring stock it owns in its warehouse
  4. A landlord insuring a building he owns and rents out

Explanation

Insurable interest requires a financial relationship such that the insured benefits from preservation or suffers loss from destruction. A passer-by with no ownership, possession or liability interest has nothing to insure.

Question 13Principles of Insurance and Risk Management

What is the main purpose of the 'average clause' in a property policy?

  1. To allow the insured to average losses across several years
  2. To average the deductible over multiple claims
  3. To reduce claim payment when the sum insured is less than the value at risk Correct answer.
  4. To average the premium over the policy period

Explanation

The average clause addresses underinsurance by scaling the claim payment to the ratio of sum insured to actual value. This discourages deliberate underinsurance and maintains the indemnity principle.

Question 14Principles of Insurance and Risk Management

A building worth 500,000 is insured for 250,000 under a policy with an average clause. A loss of 100,000 occurs. Ignoring deductibles, what amount is payable?

  1. 100,000
  2. 75,000
  3. 25,000
  4. 50,000 Correct answer.

Explanation

The sum insured is half the value at risk, so the claim is reduced by the same proportion: 100,000 multiplied by 250,000/500,000 equals 50,000. Average applies the ratio of insurance to value to the loss.

Question 15Principles of Insurance and Risk Management

Which of the following is a hazard rather than a peril?

  1. An earthquake
  2. A theft by a burglar
  3. Loose wiring in an old building Correct answer.
  4. A lightning strike

Explanation

Loose wiring is a condition that increases the likelihood of a fire loss, which makes it a hazard. Lightning, earthquake and theft are perils because they are the actual causes of loss.

Question 16Principles of Insurance and Risk Management

A moral hazard in insurance refers to which situation?

  1. The risk that an insurer will become insolvent
  2. The tendency of losses to occur in predictable patterns
  3. Physical conditions that increase the chance of loss
  4. The chance that a person will behave dishonestly or carelessly because of insurance Correct answer.

Explanation

Moral hazard arises from behaviour affected by having insurance, such as carelessness or fraud. Physical conditions are physical hazards, predictable loss patterns relate to law of large numbers, and insurer insolvency is a credit or solvency risk.

Question 17Principles of Insurance and Risk Management

Which risk management approach is illustrated when a company decides not to manufacture a highly volatile chemical at all?

  1. Risk retention
  2. Risk transfer
  3. Risk reduction
  4. Risk avoidance Correct answer.

Explanation

Deciding not to undertake the activity removes the exposure entirely, which is avoidance. Reduction would mean continuing with safeguards, transfer would mean insuring, and retention would mean accepting the exposure.

Question 18Principles of Insurance and Risk Management

Why is the law of large numbers important to insurers?

  1. It fixes the premium for every policyholder at the same level
  2. It guarantees that no large single loss will occur
  3. It allows more reliable prediction of losses as the number of similar exposures increases Correct answer.
  4. It removes the need for reinsurance

Explanation

As the number of independent, similar exposure units grows, actual loss experience tends to converge on the expected value. This statistical stability supports accurate pricing and pooling of risks.

Question 19Principles of Insurance and Risk Management

Which of the following describes reinsurance?

  1. Insurance purchased by an insurer to transfer part of its assumed risk Correct answer.
  2. Insurance purchased by an individual to cover household contents
  3. A government guarantee of all insurance claims
  4. A scheme where policyholders share losses directly among themselves

Explanation

Reinsurance is insurance for insurers, transferring part of the risk they have assumed to a reinsurer. It differs from personal insurance, mutual pooling arrangements and government guarantee schemes.

Question 20Principles of Insurance and Risk Management

An insured's factory is damaged and production halts for three months. Which type of cover responds to the lost profit and continuing fixed costs?

  1. Public liability insurance
  2. Business interruption insurance Correct answer.
  3. Personal accident insurance
  4. Marine cargo insurance

Explanation

Business interruption cover addresses loss of profit and continuing expenses following damage to insured property by an insured peril. It complements property damage cover rather than replacing it.

Question 21Principles of Insurance and Risk Management

Which statement about the duty of disclosure in insurance is most accurate?

  1. The insurer must investigate every fact about the applicant
  2. Disclosure is required only after a claim is made
  3. The applicant must disclose all material facts that would influence a prudent insurer's decision Correct answer.
  4. Only facts specifically requested on the proposal form need be disclosed

Explanation

The duty of utmost good faith requires disclosure of material facts, not merely those asked about. A fact is material if it would influence a prudent insurer's underwriting decision or premium.

Question 22Principles of Insurance and Risk Management

What is the purpose of a deductible (excess) in a policy?

  1. To transfer the entire loss to a third party
  2. To increase the insurer's liability for small claims
  3. To replace the sum insured after a claim
  4. To make the insured bear a specified initial portion of each loss Correct answer.

Explanation

A deductible requires the insured to absorb a stated amount of each loss, reducing small claims and encouraging loss prevention. It lowers the premium compared with a policy without a deductible.

Question 23Principles of Insurance and Risk Management

A policy has a sum insured of 200,000 with a deductible of 5,000. A covered loss of 30,000 occurs and there is no underinsurance. What does the insurer pay?

  1. 5,000
  2. 35,000
  3. 30,000
  4. 25,000 Correct answer.

Explanation

The deductible is subtracted from the covered loss before payment, so 30,000 minus 5,000 equals 25,000. The sum insured is not exceeded, so full indemnity applies after the deductible.

Question 24Principles of Insurance and Risk Management

An insured deliberately sets fire to the insured premises to claim the money. What is the likely consequence under the policy?

  1. The claim is payable because fire is a covered peril
  2. The claim is automatically paid by the reinsurer
  3. The claim is payable but only after a delay
  4. The claim is not payable because the loss was intentionally caused by the insured Correct answer.

Explanation

Insurance covers fortuitous losses, and intentional acts by the insured are excluded. Deliberately causing a loss breaches the policy and may also constitute fraud, so the claim is not payable.

Question 25Principles of Insurance and Risk Management

Which of the following best explains why speculative risk is generally not insurable?

  1. It involves the chance of gain as well as loss, so it is not a fortuitous pure risk Correct answer.
  2. It is always caused by natural catastrophes
  3. It involves only pure loss with no possibility of gain
  4. It is too small to be measured

Explanation

Speculative risks, such as business ventures or share trading, involve the possibility of gain or loss and are not fortuitous pure risks. Insurance is designed for pure risks where only loss or no loss is possible.

Question 26Principles of Insurance and Risk Management

A proposal form asks whether the applicant has ever been convicted of a fraud offence. The applicant answers honestly, and the insurer issues the policy. Which element of a valid insurance contract does this exchange of information primarily support?

  1. Insurable interest at inception
  2. Consideration in the form of premium
  3. Legality of the contract's purpose
  4. Utmost good faith between the parties Correct answer.

Explanation

Insurance is a contract of utmost good faith, so both parties must disclose material facts fully and honestly; the proposal form is the usual mechanism for the applicant's disclosure. Honest answers preserve the insurer's ability to assess and rate the risk, and concealment or misrepresentation could allow the contract to be avoided.

Question 27Principles of Insurance and Risk Management

An insured owns a warehouse worth 800,000. The property policy carries a sum insured of 400,000 and an average (coinsurance) condition, with no deductible. A fire causes 200,000 of damage. What amount will the insurer pay?

  1. 160,000
  2. 400,000
  3. 200,000
  4. 100,000 Correct answer.

Explanation

Under the average clause the insurer pays the same proportion of the loss as the sum insured bears to the value of the property at risk. Here the insured is covered for half of the value (400,000 of 800,000), so only half of the 200,000 loss is payable, giving 100,000.

Question 28Principles of Insurance and Risk Management

A householder installs a wood-burning stove in a living room without a hearth or flue lining, and does not tell the insurer. Which classification best fits this situation?

  1. A speculative risk that the insurer should decline
  2. A moral hazard arising from deliberate intent
  3. A physical hazard that increases the chance of loss Correct answer.
  4. A peril that the policy automatically excludes

Explanation

A hazard is a condition that increases the likelihood or severity of a loss, and physical hazards are tangible features of the property or its use. An improperly installed stove is a physical condition that raises the chance of fire, so it is a physical hazard, and its non-disclosure may also breach the duty of disclosure.

Question 29Principles of Insurance and Risk Management

A growing insurer writes a large portfolio of independent, similar fire risks and finds that its actual claims experience converges closely on the expected level. Which principle does this outcome illustrate?

  1. The rule of contribution
  2. The doctrine of proximate cause
  3. The law of large numbers Correct answer.
  4. The principle of subrogation

Explanation

The law of large numbers holds that as the number of similar, independent exposure units increases, actual results tend to approach the expected or predicted outcome. This predictability is what allows an insurer to set premiums on a portfolio basis rather than guessing at individual losses.

Question 30Principles of Insurance and Risk Management

A commercial policy excludes liability arising from pollution unless the pollution is sudden and accidental. A slow leak from a corroded tank seeps into a neighbouring site over two years. The insured argues the exclusion should be read narrowly against the insurer. Which statement best reflects how the exclusion will most likely be applied?

  1. The exclusion is void, because pollution cover is compulsory in all commercial liability policies
  2. The exclusion applies only if the insurer proves the insured intended the leak to occur
  3. The exclusion fails, because exclusions are always construed against the insurer and the insured's reading prevails
  4. The exclusion applies, because gradual seepage is neither sudden nor accidental and clear exclusion wording is generally given effect Correct answer.

Explanation

Exclusion clauses are interpreted contra proferentem, meaning ambiguity is resolved against the party that drafted them, but that rule only operates where the wording is genuinely ambiguous. Gradual seepage over two years plainly falls outside a sudden-and-accidental exception, so the exclusion is likely to be enforced as written.

Question 31Life Insurance Products and Features

Under a level premium whole life policy, which element of the premium remains constant for the entire life of the contract?

  1. The cost of insurance per unit of coverage
  2. The total premium payable each year Correct answer.
  3. The cash value accumulation rate
  4. The mortality charge deducted each month

Explanation

A level premium whole life policy charges the same gross premium every year for life, even though the true cost of protection rises with age. The insurer averages mortality cost over the insured's lifetime so the policyholder overpays in early years and underpays in later years. Only the total premium is fixed; internal charges and cash value growth change over time.

Question 32Life Insurance Products and Features

Which policy feature allows the owner of a participating life policy to receive a share of the insurer's divisible surplus?

  1. An accelerated death benefit
  2. A guaranteed insurability rider
  3. A waiver of premium benefit
  4. A policy dividend Correct answer.

Explanation

Participating policies entitle the owner to dividends, which represent a distribution of the insurer's divisible surplus. Dividends are not guaranteed and may be taken in cash, used to reduce premium, left to accumulate at interest, or used to buy paid-up additions. The other listed features are contractual benefits unrelated to surplus distribution.

Question 33Life Insurance Products and Features

A term life policy is described as renewable. What does this feature typically guarantee?

  1. The death benefit will convert to permanent coverage
  2. The policy will accumulate cash value
  3. The insured may continue coverage without new evidence of insurability Correct answer.
  4. The premium will never increase

Explanation

A renewable term policy lets the insured renew at the end of the term without providing new evidence of insurability, protecting against uninsurability. The premium at renewal is based on attained age and therefore increases. Renewability does not create cash value or convert the policy to permanent insurance.

Question 34Life Insurance Products and Features

Which of the following best describes the cash value of a traditional whole life policy in its early years?

  1. It is guaranteed to exceed the death benefit
  2. It equals the full amount of premiums paid
  3. It grows slowly because of acquisition costs and reserves Correct answer.
  4. It is unavailable until the policy is fully paid up

Explanation

Cash value grows slowly at first because early premiums fund acquisition expenses and build the reserve, so surrender value is typically below total premiums paid in the first years. It then accelerates over time. Cash value never exceeds the death benefit during the insured's lifetime.

Question 35Life Insurance Products and Features

An adjustable life policy differs from traditional whole life primarily because the owner may:

  1. Change the premium and face amount within contract limits Correct answer.
  2. Avoid all mortality charges
  3. Transfer ownership to another insurer without consent
  4. Receive dividends that are guaranteed

Explanation

Adjustable life insurance allows the policyholder to vary premium payments and adjust the face amount within limits set by the insurer, as long as the policy remains adequately funded. It blends features of term and whole life rather than offering a fixed premium and fixed face amount. Mortality charges still apply, and dividends are not guaranteed.

Question 36Life Insurance Products and Features

In a universal life policy, what is the primary role of the policy's cash value?

  1. It is paid to the beneficiary instead of the face amount
  2. It replaces the need for a mortality charge
  3. It guarantees a fixed death benefit for life
  4. It funds the cost of insurance and expenses through monthly deductions Correct answer.

Explanation

Universal life is an unbundled product in which the cash value earns interest while monthly mortality and expense charges are deducted from it. As long as the cash value covers those deductions, the policy remains in force. The death benefit is separate, and mortality charges are always required.

Question 37Life Insurance Products and Features

Which type of life insurance is designed primarily to provide protection for a specified period at the lowest initial cost?

  1. Universal life
  2. Endowment
  3. Whole life
  4. Term life Correct answer.

Explanation

Term insurance provides pure death protection for a defined period and has no cash value, so its initial premium is the lowest of the permanent and term products. Whole life, universal life, and endowment contracts include savings or cash value elements that raise the cost.

Question 38Life Insurance Products and Features

Which nonforfeiture option allows a whole life policyholder who stops paying premiums to keep a reduced amount of coverage for the rest of the insured's life?

  1. Automatic premium loan
  2. Reduced paid-up insurance Correct answer.
  3. Cash surrender
  4. Extended term insurance

Explanation

The reduced paid-up option uses the net cash value to purchase a smaller whole life policy with the same maturity date as the original, so coverage continues for life with no further premiums. Extended term instead keeps the full face amount for a limited period. Cash surrender ends coverage entirely.

Question 39Life Insurance Products and Features

A policyholder with a cash value of 20,000 stops paying premiums and elects extended term insurance. Which outcome should be expected?

  1. The policy is surrendered for 20,000 in cash
  2. The policy continues in force with premiums waived
  3. The face amount is reduced and coverage lasts for life
  4. The face amount continues unchanged for a limited number of years Correct answer.

Explanation

Extended term insurance uses the net cash value as a single premium to buy term coverage equal to the original face amount for as long as that value will fund it. Coverage therefore continues at full face amount but only for a limited period. A reduced face amount lasting for life describes reduced paid-up insurance.

Question 40Life Insurance Products and Features

An insured with a 250,000 whole life policy has a 40,000 cash value and dies. Ignoring dividends and loans, what does the beneficiary receive?

  1. 210,000
  2. 40,000
  3. 290,000
  4. 250,000 Correct answer.

Explanation

The beneficiary of a whole life policy receives the full face amount, here 250,000; the insurer retains the cash value rather than adding or subtracting it. The cash value is not paid in addition to the death benefit under a standard contract. The net amount at risk for the insurer is the face amount minus the reserve.

Question 41Life Insurance Products and Features

Which settlement option guarantees payments to the beneficiary for a fixed period regardless of whether the beneficiary survives that period?

  1. Straight life income
  2. Joint and survivor
  3. Interest only
  4. Life income with period certain Correct answer.

Explanation

A life income with period certain option pays income for the beneficiary's life but guarantees at least a stated number of years of payments to a contingent payee if the beneficiary dies early. Straight life income stops at the beneficiary's death. Interest only and joint and survivor operate on different principles.

Question 42Life Insurance Products and Features

What is the main purpose of a conversion privilege in a term life policy?

  1. To convert dividends into paid-up additions
  2. To exchange the death benefit for a loan
  3. To convert the policy into an annuity at retirement
  4. To allow the owner to convert term coverage to permanent insurance without new evidence of insurability Correct answer.

Explanation

A conversion privilege lets the policyholder exchange term coverage for a permanent policy without proving insurability, typically within a stated period. The premium for the new policy is based on the insured's attained age at conversion. It does not create annuities, loans, or dividend options.

Question 43Life Insurance Products and Features

A universal life policy is credited with a guaranteed minimum interest rate. Which statement about this guarantee is accurate?

  1. It guarantees the death benefit will never decrease
  2. It protects the policy from earning less than the stated floor Correct answer.
  3. It eliminates all mortality charges
  4. It applies only when the cash value exceeds the face amount

Explanation

Universal life contracts guarantee a minimum crediting rate, so the cash value earns at least that floor even when market rates fall. This protects accumulation but does not guarantee the death benefit, remove mortality charges, or depend on the face amount. Actual credited rates above the floor are set by the insurer.

Question 44Life Insurance Products and Features

Which rider would most appropriately address the risk that an insured becomes totally disabled and cannot pay premiums?

  1. Accidental death benefit rider
  2. Guaranteed insurability rider
  3. Return of premium rider
  4. Waiver of premium rider Correct answer.

Explanation

A waiver of premium rider waives premiums during a qualifying total disability, keeping the policy in force without out-of-pocket payment. It directly addresses the income risk of disability. Accidental death, guaranteed insurability, and return of premium riders address different risks.

Question 45Life Insurance Products and Features

An insured wants to add coverage for a child without buying a separate policy and without evidence of insurability. Which rider fits best?

  1. Children's term rider Correct answer.
  2. Accelerated death benefit rider
  3. Long-term care rider
  4. Cost of living rider

Explanation

A children's term rider attaches limited term coverage for the insured's children to the parent's policy, usually without individual underwriting. It typically expires when the child reaches a stated age and may include a conversion option. The other riders address inflation, long-term care, or terminal illness.

Question 46Life Insurance Products and Features

Which statement correctly describes the relationship between the face amount and the cash value in a traditional whole life policy over time?

  1. The cash value approaches the face amount as the policy matures Correct answer.
  2. The gap between face amount and cash value widens each year
  3. The face amount declines as cash value grows
  4. The cash value always equals the face amount from issue

Explanation

In traditional whole life, the reserve and cash value grow steadily while the face amount stays fixed, so the net amount at risk shrinks and cash value approaches the face amount at maturity. The face amount does not decline. The gap narrows rather than widens.

Question 47Life Insurance Products and Features

A policyowner wants the flexibility to skip premium payments in a given year while keeping the policy in force. Which product design best supports this?

  1. Endowment
  2. Universal life Correct answer.
  3. Renewable term
  4. Traditional whole life

Explanation

Universal life separates the protection and savings elements, allowing the owner to vary premium timing and amount as long as the cash value covers monthly deductions. Traditional whole life requires fixed premiums, renewable term has no cash value to draw on, and an endowment targets a fixed maturity.

Question 48Life Insurance Products and Features

Which of the following is a characteristic of a joint and survivor (second-to-die) life policy?

  1. It pays the death benefit after both insureds have died Correct answer.
  2. It cannot be used for estate planning purposes
  3. It pays the death benefit on the first death of either insured
  4. It covers only one insured but pays twice

Explanation

A joint and survivor policy covers two insureds and pays the death benefit only after the second death. It is commonly used to fund estate taxes that become due at the second death. It does not pay on the first death and is not limited to one insured.

Question 49Life Insurance Products and Features

An insured holds a universal life policy with death benefit option A (level). If the cash value grows, what happens to the death benefit?

  1. It decreases dollar for dollar with cash value
  2. It increases dollar for dollar with cash value
  3. It stays at the specified amount Correct answer.
  4. It equals the cash value only

Explanation

Under option A, the death benefit is a level specified amount, and growth in cash value reduces the insurer's net amount at risk rather than increasing the payout. Under option B, by contrast, the death benefit equals the specified amount plus cash value. Option A therefore keeps the death benefit constant.

Question 50Life Insurance Products and Features

Which provision prevents a whole life policy from lapsing when a premium is missed, by automatically advancing the premium from available cash value?

  1. Grace period provision
  2. Incontestability provision
  3. Automatic premium loan provision Correct answer.
  4. Reinstatement provision

Explanation

The automatic premium loan provision authorizes the insurer to advance an unpaid premium as a loan against cash value, keeping the policy in force and charging interest. It applies only when cash value is sufficient. The grace period merely delays lapse, and incontestability and reinstatement address different matters.