What does the term "lapse" mean regarding life insurance?

The term "lapse" in the context of life insurance specifically refers to a situation where a policy becomes inactive due to the failure of the policyholder to pay premiums. When premiums are not paid within the designated grace period, the insurance company will typically consider the policy lapsed, meaning that coverage is no longer in effect.

This concept is crucial for policyholders to understand, as it directly affects their insurance coverage and the benefits provided by the policy. In a lapse scenario, the insured loses the protection that the life insurance policy offered, which could have significant financial implications for their beneficiaries.

Other options describe different situations but do not accurately reflect the definition of "lapse." For instance, a policy remaining active despite non-payment misrepresents the mechanics of how insurance policies operate, as non-payment typically leads to lapse rather than continued coverage. A policyholder willingly canceling their insurance describes a voluntary termination, while a written notice to terminate coverage implies a different process rather than the automatic consequence of non-payment. Understanding the definition of lapse is key in managing life insurance policies effectively.