Lapse (Insurance)
The termination of an insurance policy due to non-payment of premiums or failure to meet policy requirements. When a policy lapses, coverage ends and the policyholder loses protection, though some policies may be reinstated within a grace period.
Example
“After missing three monthly premium payments, Sarah's health insurance policy lapsed, leaving her without coverage just before a scheduled surgery.”
Memory Tip
Think 'time LAPSE' - just like a time-lapse shows things disappearing quickly, a policy lapse makes your coverage disappear when you don't pay.
Why It Matters
Policy lapses can leave individuals and families financially vulnerable at the worst possible times, with medical bills, accidents, or other losses occurring without insurance protection. Reinstating lapsed coverage may require new underwriting, higher premiums, or waiting periods for pre-existing conditions.
Common Misconception
Many people think they can simply restart payments to reactivate a lapsed policy, but reinstatement often requires requalifying for coverage, paying back premiums, and may exclude recent health issues. Some policies cannot be reinstated at all once lapsed.
In Practice
A 45-year-old man's $300,000 life insurance policy lapses after missing two $150 monthly payments totaling $300. Three months later, he suffers a heart attack and tries to reinstate coverage. The insurance company requires a new medical exam, discovers his heart condition, and either denies reinstatement or offers coverage at $400 monthly. His family loses $300,000 in death benefit protection because he failed to pay $300 in premiums on time.
Etymology
From Latin 'lapsus,' meaning to slip or fall, indicating how coverage 'slips away' when premiums aren't paid or requirements aren't met.
Common Misspellings
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See Also
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