Lapse is a term used in relation to many types of contracts, agreements and legal documents where the contract holder fails to fulfil the terms and conditions set out therein. A lapse can happen when there is an inaction to satisfy the required conditions of the contract, when the time limit stipulated in the contract has been exceeded, or when an amount of money is due but not paid in a timely manner. In regards to stock options, a lapse occurs upon failure to exercise the option according to the terms of the contract laid out.

Life and non-life insurance policies contain provisions that if a lapse occurs due to a policyholder defaulting on payments then the regular rate at which the premiums are to be paid is likely to rise. Whereas for the policyholder reinstating the coverage within the policy's grace period the rate of premiums could either remain the same or could become slightly higher than the original rate.

One way to minimize the possibility of lapses or late payments is to set up automatic payments that will automatically withdraw the specified payment from the policyholders bank or financial institution account at regular intervals as laid out in the contract. Doing this will ensure that the payment is made on time and will save the policyholder from any bureaucratic paperwork associated with the lapse.

Ensuring that there is no lapse in the payment of premiums is essential to the policyholder in order to ensure that they are receiving the full coverage provided in their policy and are not incurring any unnecessary charges when they have to reinstate their policy. Although there can be a number of reasons for a lapse in payment, it is advisable for the policyholder to take any and all necessary steps to ensure that the payment are made in a timely manner. Doing so would ensure that the full benefits and coverage of their policy remains intact without any unnecessary rise in their rates or premiums.