Washington Life Producer Practice Exam

Which of the following is a common reason for policy lapse?

1. The policyholder redeems cash value

2. Failure to make premium payments

3. Change in beneficiary

4. Conversion to another policy

The correct answer is: Failure to make premium payments

A common reason for policy lapse is failure to make premium payments. Insurance policies, particularly whole life and term life policies, require regular premium payments to maintain the coverage in force. When a policyholder does not make these payments on time, the insurance company may eventually consider the policy inactive or lapsed. This can lead to a loss of coverage and benefits. While redeeming cash value may affect the policy's remaining value or benefits, it does not typically cause a lapse as long as premium payments continue. Changing a beneficiary or converting to another policy are administrative actions that do not inherently impact the ongoing maintenance of the policy. Therefore, the failure to make premium payments is the direct cause that can lead to a policy lapse, illustrating the need for timely financial commitment to maintain insurance coverage.