Which mechanism is designed to prevent a policy from lapsing due to non-payment?

The Automatic Premium Loan mechanism is specifically designed to prevent a life insurance policy from lapsing due to non-payment of premiums. When a policyholder does not pay their premium by the due date, this feature allows the insurer to automatically use the policy's cash value (if it has one) to cover the unpaid premium. By doing so, the policy remains in force, and the insured retains their coverage without having to make an immediate out-of-pocket payment. This is particularly beneficial for policyholders who may encounter temporary financial difficulties, as it helps maintain their insurance protection and avoids the often complicated process of reinstating a policy after it has lapsed.

In contrast, other options like the Grace Period provide a short window during which a policyholder can make the payment without risk of losing coverage, but it does not ensure that the coverage continues indefinitely without payment. The Reinstatement Option allows for the revival of a lapsed policy under certain conditions but doesn’t prevent the lapse from occurring in the first place. Cash Surrender Value refers to the amount the policyholder would receive if they cancel the policy, which is not directly related to preventing a lapse due to non-payment of premiums.