Policy termination due to nonpayment of premium is called what?

Policy termination due to nonpayment of premium is called what?

• A. Surrender
• B. Extension
• C. Lapse
• D. Revival

Answer: (C)

Lapse happens when a policyholder doesn’t pay the premium within the allowed grace period, causing the policy to terminate and its coverage to end. The grace period gives a short window to pay overdue premium; if payment isn’t made by its end, the policy lapses. Surrender is when you give up the policy for its cash value, not simply because of nonpayment. Revival is restoring a lapsed policy after meeting certain conditions, such as paying back premiums and possibly providing proof of insurability. Extension isn’t a standard term for this situation. So the term for termination due to nonpayment is lapse.

Lapse happens when a policyholder doesn’t pay the premium within the allowed grace period, causing the policy to terminate and its coverage to end. The grace period gives a short window to pay overdue premium; if payment isn’t made by its end, the policy lapses. Surrender is when you give up the policy for its cash value, not simply because of nonpayment. Revival is restoring a lapsed policy after meeting certain conditions, such as paying back premiums and possibly providing proof of insurability. Extension isn’t a standard term for this situation. So the term for termination due to nonpayment is lapse.