Forfeiture

What Does Forfeiture Mean?

Forfeiture refers to the loss of property without compensation, granted to one party in a contract when the other party defaults or fails to meet their obligations. In insurance terms, forfeiture occurs when a policyholder fails to pay premiums, leading to what is known as a policy lapse. As a result, the insurance policy is no longer in effect, and any premiums already paid are retained by the insurer. Letting a policy lapse and forfeit paid premiums is one of the costlier errors discussed in guides to common life insurance mistakes to avoid. Buyers can lower the risk of lapse by checking the average cost of life insurance against their budget before applying, since affordable premiums are easier to keep current.

Insuranceopedia Explains Forfeiture

Forfeiture occurs when one party involved in a contract fails to meet their obligations. For instance, in a life insurance policy, the insured is required to truthfully disclose their past and current health conditions before entering into the insurance contract. If it is later discovered that the insured has concealed a material fact, the insurance company may enact a forfeiture of the policy, retaining all premiums already paid. However, if the insurance contract includes a non-forfeiture clause, the insured may still receive reduced or limited benefits, or the insurer may issue a partial refund of the premiums paid.