Lapsed Policy
A lapsed policy is an insurance contract that has ended because the required premium was not paid within the grace period. Once a policy lapses, coverage stops, and the insurer is no longer obligated to pay any benefits for claims incurred after the lapse date. A lapse can occur in any type of insurance - including health, dental, life, or disability - when the policyholder fails to make a payment by the due date and does not bring the account up to date before the grace period expires.
How It Works
In Canadian insurance, a lapse is a break in coverage because the policy is no longer in force, most often tied to a missed scheduled premium payment, an uncompleted required renewal step, or an unsatisfied reinstatement condition after an interruption. This differs from non-renewal, which means the policy will not continue into the next term, and from cancellation, which is the ending of the policy under the contract. In most cases the insurer provides written notice before cancellation, giving the policyholder an opportunity to reinstate coverage. Some policies can be reinstated within a specified time frame by paying the overdue premiums and, in some cases, providing updated health information. If the reinstatement period passes, the policyholder must apply for a new policy, which may require medical underwriting and could result in higher premiums or declined coverage. In group settings such as a Government of Alberta group benefit plan, both the employer and the enrolled employee must pay their portion of premiums, and employees who fail to remit benefit premiums when due will have their group benefits coverage terminated.
Example:
Imagine a Canadian who pays the monthly premium on an individual extended health and dental plan by pre-authorized debit. After two withdrawals fail and the insurer's notices go unanswered, the overdue amount is not resolved before the grace period deadline, so the policy lapses. The person is then left without active health or dental coverage, and any treatment costs incurred after the lapse date are not covered until the policy is reinstated or a new plan is issued.
What to Watch For:
A lapse is not the same as non-renewal or cancellation; it is the practical coverage break that happens when the policy is no longer in force, often triggered by a single missed payment. Some products carry protections worth knowing about. A non-forfeiture clause can allow a policyholder to receive partial or full benefits and/or a refund of premiums if the policy lapses due to unpaid premiums, and an insurer may reserve the right to waive forfeiture if the insured resumes payment. With a whole life policy in Canada, if the premium is not paid by the end of the grace period, the insurer looks at the cash value built up in the policy and, if there is enough, will usually take out an automatic premium loan to keep coverage active. Because the reinstatement window is limited and a new policy may require medical underwriting, acting before the grace period expires gives you the best chance of keeping coverage in force.
