What is lapse risk insurance?
If policyholders still do not pay within the grace period, a policy may use its own account value to pay for the unpaid premiums. If the account value is not sufficient to pay for the policyholder's premiums, then the policy will be considered lapsed.
Is lapse risk an insurance risk?
Since the 1980s', the lapse risk has become one of the three main risks faced by life insurers, with market and credit risks. Policyholders' behaviors have a direct impact on the financial performance of the insurance company and are therefore crucial for the stakeholders of the firm.
What does lapse mean in insurance?
A life insurance lapse occurs when you stop paying your policy's premium and the contractual grace period has expired. If you let your life insurance lapse, coverage will end. Depending on your policy, you might be able to reinstate a lapsed policy by meeting certain requirements.
What happens if policy lapses?
A Lapsed Policy\n\n If the insured does not pay the premium amount even during the grace period, the life insurance policy lapses. In this state, the insured will no longer enjoy coverage from the policy, and will also not be eligible for any death benefit.