What happens when a policy experiences a "lapse"?

When a policy experiences a "lapse," it means that the insurance coverage is no longer in effect, making it void. A lapse typically occurs when the insured fails to make premium payments by the due date, meaning the insurer can no longer provide coverage under the terms of the policy.

Once a policy lapses, the insured is left without protection against potential losses that would have been covered if the policy were still active. This situation emphasizes the importance of timely premium payments to maintain continuous coverage. If the policyholder wishes to reinstate the policy after a lapse, they may need to go through a reinstatement process, which can involve additional conditions or underwriting.

The other options do not accurately reflect what occurs when a policy lapses. Coverage cannot be enhanced, premiums are not reduced as a result of a lapse, and the policy does not renew automatically; rather, the coverage ceases altogether. Understanding the implications of a lapse highlights the necessity for policyholders to stay current with their insurance premiums to avoid gaps in coverage.