What does "lapse" refer to in life insurance policies?

In the context of life insurance policies, "lapse" specifically refers to the termination of a policy due to non-payment of premiums. When a policyholder fails to pay their premiums within the designated grace period, the insurer has the right to terminate the coverage, marking the policy as lapsed. This means the insured no longer has the benefits associated with the policy unless reinstatement provisions are invoked, which can allow a policyholder to restore the policy under certain conditions.

This concept is crucial for policyholders to understand as it can lead to the loss of insurance coverage, potentially leaving them without financial protection at a time when it is most needed. It highlights the importance of maintaining timely premium payments to keep the policy in force.

The distinction from other choices is significant: a revocation by the insurer would imply a different set of circumstances, such as a breach of policy terms; voluntary cancellation indicates a decision made by the policyholder rather than an automatic result of non-payment; and adjusting policy premiums is a separate action that pertains to changes in costs rather than the status of the policy itself.