What is a lapse letter in the context of life insurance?

• A. A policy renewal notification
• B. A warning about unpaid premiums
• C. A letter confirming a claim payout
• D. A request for beneficiary confirmation

Answer: (B)

A lapse letter in the context of life insurance serves as an official communication from the insurance company to the policyholder regarding unpaid premiums. When a policyholder fails to make premium payments within the specified grace period, the insurer sends a lapse letter to inform them that their policy may be at risk of lapsing due to non-payment. This letter typically highlights the amount due, the deadline for payment, and often reiterates the consequences of not addressing the unpaid premiums, such as the loss of coverage.

This function of the lapse letter is critical as it provides the policyholder with an opportunity to rectify the situation before their insurance coverage is canceled. Understanding this concept is essential for policyholders to maintain their coverage and avoid the lapse of their life insurance.