Tennessee Life Producer Practice Exam

What typically happens when a life insurance policy lapses?

1. The policy can be renewed without penalty

2. The coverage immediately terminates

3. The insurer will continue coverage for six months

4. Benefits will be paid if the insured dies within a grace period

The correct answer is: The coverage immediately terminates

When a life insurance policy lapses, the coverage typically terminates immediately. This means that the policyholder no longer has insurance protection against death or other covered events, and the insurer is no longer liable for any claims. Policy lapse often occurs due to non-payment of premiums within the allowed grace period, which is typically specified in the policy contract. While some insurance policies may offer options for reinstatement after a lapse under certain conditions, the standard outcome of a lapse is that the insurance coverage ends. It's important for policyholders to be aware of their payment obligations and the consequences of not maintaining the premium payments to avoid losing their life insurance protection.