What is the term used when cash value is applied by the insurer to prevent a lapse in a whole life insurance policy?

The term for when cash value is used by the insurer to prevent a lapse in a whole life insurance policy is known as the automatic premium loan. This feature allows the insurer to borrow against the policy's accumulated cash value to cover any unpaid premiums. When this option is in place, if a premium is not paid by the due date, the insurer automatically uses the cash value to pay the premium. This means the policy remains in force rather than lapsing due to non-payment.

On the other hand, while extended term insurance, cash surrender options, and reduced paid-up insurance are alternatives available to policyholders, they do not specifically involve the automatic application of cash value to prevent a lapse. Extended term insurance converts the policy into a term policy for the same face amount using the cash value, not preventing a lapse in the original policy. Cash surrender involves terminating the policy for its cash value, which will not keep the policy active. Reduced paid-up insurance means the policy is continued with a lower face amount but does not utilize the cash value in the same immediate manner as an automatic premium loan does to cover premiums.