Updated: 09 June 2023

What Does Forfeiture Mean?

A forfeiture is the loss of a property without compensation in favor of one party to a contract when the other party defaults or fails to comply with its obligations. In terms of insurance, a forfeiture takes place when the policyholder defaults on the payment of premiums, which is also known as an insurance policy lapse. As a result, the policy is no longer in effect and the premiums already paid are forfeited by the insurer.

Insuranceopedia Explains Forfeiture

A forfeiture occurs when one of the involved parties falls short of meeting their obligation in a contract. For example, in a life insurance policy, the insured is required to declare the truth about his past and present health conditions prior to entering in an insurance contract. If in any case the insured is found to have concealed a material fact, the insurance company may enact a forfeiture of the policy and all the premiums already paid. However, if the insurance contract has a non-forfeiture clause, the insured may still receive benefits, albeit a reduced or limited amount, or the insurer may issue a partial refund of the paid premiums.

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