What Is Lapse? Definition | Epic Life Glossary

Why it matters

Lapses are costly. Families lose protection, and they may need new underwriting at an older age and higher rate. For agents, early lapses can cause commission chargebacks. A policy with cash value may stay alive through nonforfeiture options or an automatic premium loan. Reinstatement rules and time limits vary by carrier and state.

Source: law.cornell.edu

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Related terms

Grace Period: A grace period is the extra time after a premium due date when the policy stays in force even though the payment is late. Many policies give 30 or 31 days.
Reinstatement: Reinstatement is the process of restoring a lapsed life insurance policy to active status. The owner usually pays past-due premiums and may need to show the insured is still insurable.
Nonforfeiture Options: Nonforfeiture options are choices a permanent policy owner has if premiums stop. They let the owner keep some value, such as cash, reduced paid-up coverage, or extended term coverage.
Chargeback: A chargeback is when a carrier takes back part of an agent's commission because a policy lapsed, was canceled, or was rescinded within a set period after issue.
Persistency: Persistency is the share of policies that stay in force over time, usually measured at 13 months or longer. Higher persistency means fewer policies lapse.

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