What Does Lapse Mean?

The term refers to the termination or annulment of a certain privilege, claim or contract. The reason for the cessation may vary from case to case, but a right is usually annulled due to a time-limit or passivity. The first case means that the period for which certain privileges or rights are valid is over, while passivity refers to the case when somebody could receive a certain benefit, but due to his or her inactivity this is not possible. This means certain terms or conditions are not kept, or the person does not fulfil certain requirements mentioned in the policy or the agreement.

Lapse Explained

The situation that a contract or an agreement lapse usually can be explained with the fact that the beneficiary is unable to act on his or her obligations. Also, the person might have broken certain terms from the policy.

A good example for lapse is when an insurance policy holder fails to make regular payments for the insurance contract. Another example when an option contract lapses is if it reaches its expiration date. This means the policy holder will no longer have any rights over the underlying asset.