What happens to the cash value if the policy is allowed to lapse?

When a variable life insurance policy is allowed to lapse, the cash value associated with the policy is typically forfeited. This means that the policyholder will lose access to the accumulated cash value, which is a significant aspect of variable life insurance. It is important to understand that the lapse of the policy signifies that the policyholder has not kept up with the premium payments required to maintain the policy, leading to the termination of coverage and any associated cash value benefits.

Unlike a fully refunded option, which would require the insurance company to return the cash value upon policy cancellation, forfeiting the cash value means the policyholder does not receive any monetary compensation. The possibility of reactivating the policy also implies that something remains intact, which is not the case once a policy lapses; it is effectively no longer valid. Similarly, transferring cash value to a new policy would not occur in the event of a lapse; any cash value is lost, barring specific circumstances outlined in certain insurance agreements. Therefore, forfeiting the cash value is the appropriate outcome when a variable life insurance policy is not maintained.