Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Lapse

What it is:

Lapse refers to the expiration of an insurance policy or other agreement.
 

How it works (Example):

Let's say John Doe has a life insurance policy with a $5,000 annual premium. This year, John can't make the payment because he has lost his job. As a result, he misses the payment and his life insurance coverage lapses, meaning that it is no longer valid. Later that year, John dies. Accordingly, his daughter does not receive the death benefit from the policy.

Why it Matters:

In general, a lapse is a bad thing and it means that one party has failed to fulfill its obligations under a contract.