What is a Lapse?

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

How Does a Lapse Work?

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 As a result, he misses the payment and his life insurance coverage lapses, meaning that it is no longer valid.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 Does a Lapse Matter?

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

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

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