What does it mean when a policy lapses?
A policy lapses when premium stops being paid and coverage ends after the grace period. The client is uninsured, the renewal income stops, and any unearned advanced commission is charged back. Most lapses are a payment problem rather than a decision to cancel.
The important thing about lapses operationally is that they are usually preventable and rarely prevented. A card expires, a draft date falls on the wrong side of payday, a bank account changes — and nobody notices until the grace period has run out.
This is why a system that surfaces failed drafts early pays for itself. The same lapse caught on day three is a phone call; caught on day forty it is a chargeback, a lost client and a reinstatement application.
| Client | uninsured |
|---|---|
| Renewal income lost | for the life of the policy |
| Unearned advance reclaimed | up to 100% early in year one |
| Persistency | damaged, for 13 months |
| Cost to catch it on day 3 | one phone call |
Grace periods vary by carrier and state.