In the context of life insurance, what does "lapse" mean?

Lapse refers to the termination of a life insurance policy as a result of non-payment of premiums. When an insured individual fails to pay their premiums within the grace period provided by the insurer, the policy ceases to be in force. This means that the coverage is no longer active, and the insurer is not obligated to pay any benefits upon the death of the insured or during the policy's term. Understanding the concept of lapse is crucial for policyholders because it highlights the importance of maintaining timely premium payments to ensure continuous coverage.

The other options describe different concepts in life insurance: extending coverage pertains to renewals or riders that may alter the term length, transferring a policy refers to changing ownership through a process called assignment, and adjusting policy values usually relates to the effects of market fluctuations on certain types of policies like variable life insurance. None of these accurately describe a lapse in the context of life insurance.