What does "lapse" mean in relation to life insurance?

In the context of life insurance, "lapse" refers specifically to the termination of a policy due to nonpayment of premiums. When a policyholder fails to pay the required premium payments by the end of the grace period, the insurance company has the right to terminate the policy. It means that the insurance coverage is no longer in effect, and the policyholder would not receive any death benefit under that policy after it has lapsed.

The concept is crucial for policyholders to understand because maintaining timely premium payments is essential to keep their life insurance coverage active. Lapsing a policy can often be irreversible, depending on the terms set by the insurer and whether there are options available to reinstate the policy.