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⏳ '''Lapsed policy''' is an [[Definition:Insurance policy | insurance policy]] that has been terminated — typically by the [[Definition:Insurance carrier | carrier]] — because the [[Definition:Policyholder | policyholder]] failed to pay the required [[Definition:Premium | premium]] within the contractual [[Definition:Grace period | grace period]]. Unlike a voluntary [[Definition:Policy cancellation | cancellation]] initiated by the insured, a lapse occurs passively: the policyholder simply stops paying, and the contract falls out of force. Lapsed policies are common across virtually every line of business, from [[Definition:Life insurance | life insurance]] and [[Definition:Health insurance | health insurance]] to [[Definition:Auto insurance | auto]] and [[Definition:Commercial insurance | commercial coverages]], and they carry significant consequences for both the insured and the insurer.

🔄 When a premium payment is missed, most policies enter a grace period — often 30 or 31 days for life and health products, though the window varies by [[Definition:Line of business | line of business]] and jurisdiction. During this window, coverage typically remains in effect, giving the policyholder time to remit payment. If no payment arrives by the end of the grace period, the policy lapses and [[Definition:Coverage | coverage]] ceases. In life insurance, a lapsed policy may still carry some residual value: [[Definition:Whole life insurance | whole life]] contracts with accumulated [[Definition:Cash value | cash value]] might automatically convert to [[Definition:Reduced paid-up insurance | reduced paid-up]] or [[Definition:Extended term insurance | extended term]] coverage under [[Definition:Non-forfeiture option | non-forfeiture provisions]]. Some carriers offer [[Definition:Reinstatement | reinstatement]] within a defined period — often requiring evidence of insurability and back-payment of missed premiums — but there is no guarantee the policyholder can recover the original terms.

📉 From the insurer's perspective, policy lapses are a double-edged sword. On one hand, high [[Definition:Lapse rate | lapse rates]] in life insurance can expose a carrier to [[Definition:Anti-selection | anti-selection]] risk, because healthier policyholders are statistically more likely to let coverage drop while those with greater claims potential tend to maintain their policies. On the other hand, lapses release [[Definition:Policy reserve | reserves]] that the carrier had set aside, which can provide a short-term financial benefit — a dynamic that regulators watch closely to ensure companies are not building business models that depend on assumed lapses. For the policyholder, the gap in coverage created by a lapse can be devastating: a claim occurring even one day after the policy lapses will go unindemnified, and obtaining new coverage later may come at a higher [[Definition:Premium rate | rate]] or with [[Definition:Exclusion | exclusions]] tied to the coverage gap.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Grace period]]
* [[Definition:Reinstatement]]
* [[Definition:Non-forfeiture option]]
* [[Definition:Lapse rate]]
* [[Definition:Premium]]
* [[Definition:Policy cancellation]]
{{Div col end}}

Definition:Lapsed policy - Revision history

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