Which of the following can lead to a reduction in benefits under a policy?

Lapsing or surrendering a policy can indeed lead to a reduction in benefits. When a policy lapses, it typically means that the policyholder did not maintain the necessary premium payments, resulting in the contract becoming void. As a consequence, the policyholder may lose coverage and any associated benefits that were previously guaranteed under the policy. In the case of surrendering the policy, the policyholder voluntarily terminates the coverage, which usually results in receiving the cash value accumulated, if any exists, but forfeits all future benefits under the policy. This can considerably diminish the protection that the policy offered, as the individual will no longer have coverage against the risks previously insured.

The other options, while relevant to policy management, do not inherently lead to a reduction in benefits. Choosing a lower cover amount at the outset adjusts the coverage level but does not reduce existing benefits unless further changes are made. Consistently paying premiums on time generally ensures that benefits remain intact and can even lead to potential bonuses or enhancements. Increasing the cover amount over time is often a strategy used to adapt to changing needs and does not diminish benefits; instead, it can increase protection at the cost of higher premiums.