Florida Life and Health Insurance License Practice Test 2025 - Free Insurance Practice Questions and Study Guide

When an insurance policy lapses, one significant consequence is that the insured loses coverage until the policy is reinstated. A lapse occurs when the policyholder fails to pay the premium due, leading to a termination of the contract by the insurer. As a result, the insured is no longer protected under that policy, meaning they do not have coverage for any claims that might arise during the lapse period.

This situation can have serious financial implications, especially in cases where the insured may need to file a claim for an event that occurs while the policy is inactive. To regain coverage, the policyholder would typically need to go through a reinstatement process, which may involve paying back premiums and possibly providing evidence of insurability, depending on the terms of the policy.

In contrast, a sudden increase in premiums, an increase in the policy's value, or receiving a refund for unused premiums typically do not occur as direct consequences of a lapse. Insurance policies are designed to protect individuals from loss during the active period of the insurance, and lapsing effectively voids that protection until reinstatement is complete.