What does "lapsed policy" refer to in the context of nonforfeiture options?

A "lapsed policy" specifically refers to a situation where a policy is terminated due to the insured's failure to pay the necessary premiums. When the premiums are not paid within the required timeframe, the policy ceases to be active, and the coverage is lost.

In the context of nonforfeiture options, this term emphasizes the significance of understanding what happens to the benefits of a policyholder when they default on premium payments. Nonforfeiture options are provisions in insurance policies that allow policyholders to receive some value from their policy even if it has lapsed, rather than losing all benefits entirely. This could take the form of a reduced paid-up policy, extended term insurance, or cash surrender value. Hence, recognizing that a lapsed policy results from unpaid premiums illustrates the importance of these options, allowing policyholders to retain some benefit despite the policy being no longer in force.