Life Insurance Policies, Provisions, Options and Riders Practice Test

If a policyholder stops paying premiums, the most likely outcome is that the policy may lapse, which means the insurance coverage is terminated. Insurance policies typically contain a provision that specifies when a policy will lapse due to non-payment of premiums. This lapse generally occurs after the expiration of any grace period the policy might offer.

When premiums are not paid, the insurance company retains the right to terminate the policy, and the coverage will cease unless the policyholder takes action to reinstate it during any applicable grace period. During this grace period, the policyholder can still make up the missed payments to keep the coverage active. If the policy lapses, the policyholder generally loses the benefits associated with the policy, including the death benefit, unless there are provisions in place, such as cash value or paid-up insurance options, which may have different implications for a lapsed policy.