In what situation can an insurance policy be considered "lapsed"?

An insurance policy can be considered "lapsed" when premiums are not paid within the grace period. A grace period is a specified time frame after the premium due date during which the policyholder can make their payment without losing coverage. If the premium is not paid by the end of this period, the policy is deemed inactive, or lapsed, meaning that the insurer is no longer obligated to pay out claims and the insured is not covered.

The other scenarios do not lead to a lapsed policy. When a claim is denied, the policy itself is still in force unless the lack of payment leads to a lapse. If an insurer goes out of business, it may affect the validity of claims or future coverage but does not directly cause the lapsed status unless the policyholder fails to make payments before the insurer's closure. Likewise, changing insurers does not cause a policy to lapse; it merely means the policy is replaced or switched to a new provider, and coverage can often continue uninterrupted unless a payment issue exists.