Lapse is a legal term that refers to time-sensitive documents that have become invalid due to the expiration of their validity period. Put simply, lapse means that something has become legally invalid, either due to time passing or because a necessary action was not taken. In the context of insurance, lapsed policies are those which are inactive due to non-payment or due to the passage of time.
In other cases, lapse can refer to the expiration of a contract, an increase in debt due to interest, or a missed payment date. For example, if a contract has a three-month duration but the parties fail to finalize it before the third month, the contract may be considered lapsed. If a loan has cumulative interest, every missed payment will cause the debt to increase exponentially and will also be considered lapsed.
Avoid Lapse by Following Procedures
To avoid a lapse, it is important to have procedures in place to help you keep track of documents, payments, and contracts. For insurance policies, it is important to set reminders to pay premiums or forward notices sent by the company. When dealing with contracts, it is important to review time frames for completion and create procedures to ensure all the steps are taken before the deadline.
For loans, it is important to set up automatic payments or set reminders to make sure the payments are received before the due date. Additionally, it is important to be conscious of interest rate increases or delays in payments when making decisions.
Conclusion
Lapse is an important legal term with varied meanings. At its core, it means that something has become legally invalid due to the expiration of a validity period or due to inaction. In order to avoid lapse, it is important to have procedures in place to keep track of documents, payments, and contracts and remain aware of deadlines.