What occurs when a life insurance policy lapses?

When a life insurance policy lapses, the primary consequence is that the policyholder loses coverage and benefits. A lapse occurs when the policyholder fails to pay the required premiums within the grace period set by the insurance company. As a result, the insurance contract is no longer in force, and the policyholder is not entitled to any benefits that would have been provided under the policy. This means that in the event of the insured individual’s death or if they need to access any cash value that may have accumulated, they will not receive any payout since the policy is no longer active.

In contrast, the other options do not accurately portray what happens when a life insurance policy lapses. Benefits are not transferred to another policy, premiums do not adjust automatically in a lapsed policy, nor is there any renewal of the policy without action from the policyholder. Understanding the implications of a lapsed policy is crucial for policyholders to maintain their coverage and ensure that their beneficiaries are protected.