Lapse
Also called policy lapse, lapsed policy
When a policy terminates because premiums stopped or the cash value ran dry — ending coverage, often at the worst possible time and with nothing paid out.
A lapse is what happens when a life insurance policy terminates for lack of funding — either because you stopped paying the premium, or because a permanent policy’s cash value got drained below the point where it can cover the monthly charges. The coverage switches off. If death came the day after, no death benefit would be paid.
For term life, a lapse is straightforward: miss the premium past the grace period and the policy ends. For permanent policies, lapse is sneakier. The policy can keep running for years on its cash value while you pay little or nothing — right up until the rising cost of insurance outruns the interest being credited. Then the cash value collapses, and the policy lapses decades into the contract, often exactly when the insured is old enough that new coverage is unaffordable or impossible.
This is why lapse is the quiet killer. A permanent policy that lapses at 80 has taken every dollar of premium and returned nothing — the same net result as never having bought coverage, except far more expensive. The illustration that sold it rarely dwells on this; the friendly current-assumption column can show cash value lasting to age 100, while the guaranteed column shows the same policy lapsing in the insured’s 70s.
If you own a permanent policy, the single most useful thing you can do is request an in-force illustration and read the guaranteed column: at what age does this policy lapse if I pay only what I’m paying now? If the answer is younger than you expect to live, the policy is underfunded — and you’d rather learn that now than let it fail silently.
A lapse is the quiet way most permanent policies actually end. You pay for years, coverage silently switches off, and the family that was counting on a death benefit gets nothing. Lapse is the outcome a bad illustration is quietly steering you toward.
A universal life policy is illustrated to 'carry itself' by retirement. But the cost of insurance keeps climbing, interest credited comes in low, and the cash value drains. The owner misses the fine-print warning letters, the grace period runs out, and at 79 the policy lapses — 25 years of premiums gone, no death benefit.
A policy sold as 'self-sustaining' or 'paid up' when the illustration only shows the current, non-guaranteed column. Ask what age the policy lapses on the guaranteed column with no more premiums paid. That's the honest expiration date.