What is Lapse?
A lapse is a term in the insurance industry that describes the termination of an insurance policy due to non-payment of premiums. When a policy lapses, the coverage is no longer active, meaning the insured individual no longer has financial protection under that policy. Lapses can happen with various types of insurance, including life insurance policies such as Indexed Universal Life Insurance, Whole Life Insurance, Term Life Insurance, and Senior Life Insurance.
In the context of life insurance, a policy lapse can have significant implications. For instance, with term life insurance, once the policy lapses, the insured party loses their death benefit protection. In the case of whole life or indexed universal life insurance, not only does the death benefit end, but any cash value accumulated may also be affected or forfeited, depending on the policy’s terms and conditions.
For many types of insurance policies, there is typically a grace period provided after a missed premium payment. During this time, the policyholder may still be covered, allowing them to make up the payment and reinstate their policy. However, if the payment is not made by the end of the grace period, the policy will lapse, and any benefits, such as death benefits or cash values, may no longer be accessible.
Policyholders are encouraged to maintain timely premium payments to avoid lapses, as reinstating a lapsed policy can often involve additional fees or require requalification through a new underwriting process. Avoiding a lapse ensures continuous coverage and financial security for policyholders and their beneficiaries.