What is Lapse?
A lapse in insurance refers to the termination of an insurance policy, typically caused by the policyholder failing to make premium payments or not meeting the policy’s conditions. Once a policy lapses, the coverage is no longer active, and the insured party will not be protected against the risks the policy was originally intended to cover.
A lapse in personal and business insurance, such as homeowners or auto insurance, can expose individuals or businesses to significant financial risk. For example, if a homeowner allows their insurance policy to lapse and damage occurs to the property, the repair costs will no longer be covered.
It’s important for policyholders to avoid lapses by ensuring timely payments and meeting all policy requirements. Most insurers offer a grace period after a missed payment, during which the policy can be reinstated before it fully lapses. However, once the lapse occurs, reinstating the policy may involve additional fees or a review of the insured party’s current risk profile.