What does it mean when an insurance policy "lapses"?

When an insurance policy "lapses," it means that the coverage has become void due to the policyholder's failure to make premium payments. In the context of insurance, a lapse occurs when the insured has not paid their premiums for a specified period, resulting in the termination of the policy. Essentially, the insurance company is no longer obligated to provide coverage as the contractual agreement between the insurer and the insured is based on timely premium payments.

Lapsing can have significant consequences for the policyholder, including losing all coverage under the policy and potentially facing higher premiums or underwriting scrutiny if they decide to reapply for a new policy in the future. In many cases, insurance providers may offer a grace period, a designated time frame after the payment due date, during which the policyholder can still make a payment without losing coverage. However, once that period expires without payment, the policy lapses.

While other options may involve various situations concerning insurance policies, none accurately define the specific meaning of a lapse. For example, transferring the policy, being in a grace period, or modifying it to include additional benefits are entirely different processes and do not relate to the lapse status of a policy.