What are the potential consequences of letting a life insurance policy lapse?

When a life insurance policy lapses, it means that the policyholder has failed to make the required premium payments, resulting in the termination of coverage. The primary consequence of this lapse is that the insured loses all protection provided by the policy, meaning that in the event of the insured's death, no death benefits will be paid out to beneficiaries. Therefore, the correct answer highlights that coverage will cease, and any claims made after the lapse will not be honored.

While it may be true that some policies offer a grace period to allow policyholders to make missed payments, once that grace period is over and the policy has officially lapsed, the insured is no longer covered. Additionally, policies do not automatically replace themselves, and premiums are generally non-refundable once the policy has lapsed, as insurance is based on the risk taken at the time the coverage is active. Thus, understanding the implications of allowing a life insurance policy to lapse is crucial for maintaining adequate coverage and ensuring that beneficiaries are protected financially.