Ace the Chartered Life Underwriter Challenge 2025 – Secure Your Success and Dominate the Exam!

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What occurs in a "policy lapse"?

The policyholder receives a payout before death

The policyholder fails to pay premiums, resulting in loss of coverage

In the context of life insurance, a "policy lapse" refers to a situation where the policyholder fails to pay the required premiums on time, which ultimately leads to the termination of coverage. When premiums are not paid, the insurance company typically allows a grace period during which the policyholder can make the payment without losing coverage. If the payment is not made within this timeframe, the policy lapses, meaning that the insurance contract is no longer in effect, and the insured loses their coverage and associated benefits.

This understanding is crucial for policyholders as it highlights the importance of keeping up with premium payments to maintain their insurance protection. A lapse can have significant implications, such as leaving the individual without coverage during times when they may need it the most, often at adverse financial or health situations.

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The insurer reduces the premium for future coverage

The policyholder cancels their coverage voluntarily

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