What happens when a policyholder fails to pay their premium?

When a policyholder fails to pay their premium, the outcome is that the policy lapses and coverage is lost. Premium payments are essential for the maintenance of insurance contracts; they fund the coverage provided by the insurer. If a policyholder does not pay the premium by the due date, the insurer typically allows a grace period during which the policyholder can make the payment without penalty. However, if the premium remains unpaid after this grace period, the policy will generally lapse.

This means that the policyholder will no longer have the insurance coverage they relied upon, and any claims made after the lapse will not be honored by the insurer. The policy effectively becomes void, and the insured may find themselves without essential protection, potentially leading to financial loss in the event of a claimable incident.

The other choices, such as automatic renewal, premium increases, or expanded coverage, do not occur as a direct consequence of non-payment. These actions typically require proactive steps from either the policyholder or insurer, not the passive failure to make premium payments. Thus, the correct interpretation of the consequences of failing to pay premiums aligns with the policy lapsing and the resulting loss of coverage.