Massachusetts Life Producer Practice Exam

What term is used to describe the risk that a life insurance policy will not be renewed upon its expiration?

1. Underwriting risk

2. Renewal risk

3. Expiration risk

4. Policy lapse risk

The correct answer is: Policy lapse risk

The term that accurately describes the risk that a life insurance policy may not be renewed upon its expiration is known as "policy lapse risk." This refers to the situation where the policyholder fails to renew the policy or does not continue to make premium payments, leading to the termination of the insurance coverage. Renewal risk, while closely related, typically involves the uncertainty associated with the terms of renewal, including potential changes in premiums or coverage. Expiration risk might suggest issues concerning the vital time frame around the policy's expiration, but it does not capture the essence of an individual opting not to renew. Underwriting risk focuses more on the liability that an insurer takes on at the time of underwriting a policy, encompassing aspects of risk selection and pricing rather than the renewal process itself. Understanding policy lapse risk is crucial for both insurance providers and policyholders, as it highlights the importance of maintaining ongoing coverage and the financial implications of failing to do so.