General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A life policy terminates because the insured failed to pay the premium when due. This termination is best described as a:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Lapse is the termination of a policy because the insured fails to pay premiums within the grace period. Cancellation is a termination initiated by either party for specified reasons, often by the insurer subject to notice requirements. Surrender is the policyowner's voluntary cash surrender of a permanent policy. Rescission voids a contract from inception for misrepresentation or concealment. Nonpayment of premium is the classic lapse scenario.
Why the other options are wrong
- B) Cancellation is initiated by the insurer for cause with notice, not the automatic lapse that follows nonpayment.
- C) Surrender is the owner's voluntary exchange of the policy for its cash value, not a termination for unpaid premiums.
- D) Rescission arises from misrepresentation or concealment and voids the contract from the start.
Memory hook
No premium = lapse. Insurer pulls it = cancellation. Owner cashes out = surrender. Wrongdoing = rescission.