What is the consequence of insufficient cash in life insurance?

Insufficient cash in a life insurance policy can lead to the policy lapsing, which means that it no longer remains in force and the coverage provided by the policy is terminated. This often occurs if policyholders fail to pay their premiums on time, resulting in a depletion of the cash value that is sometimes used to cover these payments. If the cash value is not sufficient to handle premium payments, especially in permanent life insurance policies, the insurer may declare the policy lapsed.

A lapsed policy can have significant implications for the policyholder, as it means that they will no longer have the death benefit protection that the policy was intended to provide. Additionally, once a policy lapses, the individual may have to go through additional steps or qualifications to reinstate it or might be left without coverage altogether.

In contrast, the other options do not relate directly to the consequences of insufficient cash in the context of life insurance. The fixed premium refers to the policy's payment structure, guaranteed life income pertains to benefits that are provided under certain annuity contracts, and homogeneous exposure involves categorizing risks rather than addressing the specific issue of cash sufficiency in a life insurance policy.