A lapsed policy is a life insurance contract that has terminated because required premiums were not paid within the grace period and no nonforfeiture options or automatic premium loan provisions kept it in force. Once lapsed, the policy's death benefit protection ends, and any remaining cash value may be applied to outstanding loans or paid out according to contract terms. Lapses can undermine long term financial and estate plans, especially for permanent policies intended to provide lifelong coverage or estate liquidity. Insurers often provide lapse notices and may offer reinstatement opportunities if the insured remains insurable and pays past due premiums and interest.

In everyday practice, advisors encounter lapsed policies when clients forget to pay premiums, change bank accounts, or mistakenly believe that coverage is paid up. They also see lapse risk when heavily loaned policies have insufficient cash value to support ongoing charges, causing policies to implode if not actively managed. When a lapse notice appears, advisors may help clients explore reinstatement, which typically requires updated health information and payment of missed premiums. For clients whose health has deteriorated, reinstatement may be more attractive than applying for new coverage. Advisors also review automatic premium loan provisions, reduced paid up or extended term options, and potential tax consequences of lapses with gain and outstanding loans. By monitoring in force policies and educating clients about lapse risk, producers can reduce surprises, protect carefully built plans, and position periodic policy reviews as an essential part of long term life insurance ownership.