What Is a Car Insurance Lapse?
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A car insurance lapse occurs when you lose car insurance coverage usually because you’re late on your premium payments or your auto insurer canceled your policy. Technically, a car insurance lapse can be as short as one day but some insurers offer grace periods up to 30 days to get up-to-date on your late payments before the lapse counts against you.
Drivers should avoid coverage lapses because it can lead to higher insurance rates and costly legal fees if you’re pulled over by an officer. Worse yet, if you’re involved in an accident, you may not be covered.
What Are the Common Causes of a Lapse in Car Insurance?
Lapses in coverage are commonly caused by late payments on your auto policy or when your insurance company refuses to renew your policy. While less common, a coverage lapse can also occur if you schedule your new policy to start one or more days after your current policy ends.
You’re Late on Your Premium Payments
When you buy an auto insurance policy, you must make your premium payments, which are usually charged monthly. If you are multiple weeks late on your payment, your coverage will lapse and you will not be covered if you get into a car accident.
One way to avoid late payments is to set up automatic payments or pay for the entire policy in a single upfront payment. There are also affordable car insurance options for low-income households worth considering if you’re struggling to pay your bills.
Your Insurer Refuses To Renew Your Policy
Auto insurance companies generally refuse to renew policies for high-risk drivers with multiple driving offenses and car accidents. However, auto insurance companies are not allowed to cancel policies without sending the policyholder notice, typically 30 days prior to cancellation. If you’re not regularly checking your account notifications and mail, you may lose coverage without realizing it.
After receiving a notice, it is your responsibility to find a new car insurance company within the notice period. Failure to find a new insurer by the notice date will create a lapse in coverage.
You Forgot To Add Your New Car as a Listed Vehicle
After buying a new car, list the vehicle on your auto policy. This step is not automatic and your insurer needs to be alerted that you need coverage for a new car.
Most insurers will allow a grace period up to 30 days to add your new vehicle to the policy. However, driving your new ride after the grace period is technically driving an uninsured vehicle. Adding the new car to your auto policy the day you buy it will help you avoid this issue altogether.
You Scheduled Your New Policy To Start on the Wrong Date
Scheduling your new policy one or more days after your current policy ends will create a lapse in coverage. Generally, this mistake is rare but can happen if you’re careless. Be sure to confirm when your current policy ends and schedule your new policy to start before or on that date to avoid a lapse in coverage.
You Didn’t Pause Your Insurance Coverage
Some insurers will allow you to pause your insurance coverage if you won’t be driving your car for several months. For example, an insurance company may pause your insurance coverage if you’re dorming at your college campus or you’re being deployed overseas for military duty.
If you intend to drive again, pausing your coverage is preferable to canceling your auto policy outright because it does not create a lapse in coverage. Even if you cancel your auto policy for a legitimate reason, like military deployment, the lapse in coverage will still exist and can result in higher insurance premiums when you buy auto insurance in the future.
What Happens if Your Car Insurance Lapses?
On top of paying higher insurance premiums, lapses in car insurance can incur legal fines and penalties. Below are some penalties you may face when your car insurance coverage lapses:
- Suspension of your driving privileges
- Repossession of your car by your auto lender or leasing company
- Points against your driving record
- Higher car insurance premiums
- SR-22 filing requirements
- Pay completely out-of-pocket if you’re in a car accident without insurance
What To Do if You Have a Lapse in Car Insurance
Drivers with a lapse in their auto insurance coverage can either attempt to reinstate their most recent policy or shop around for a new carrier.
After confirming your coverage lapse, avoid driving. Driving without car insurance can have severe legal and financial consequences if you’re caught. Beyond getting your license suspended and paying fines, you may be held liable for all damages and injuries if you cause a car accident while uninsured.
Attempt To Reinstate Your Auto Insurance Policy
Reinstating your auto insurance policy with your previous company is preferable to shopping for a new policy with a coverage lapse in your driving history.
Call your previous insurance company to confirm the length of your coverage lapse. If you’re still within the grace period, your insurer may allow you to make your outstanding payments without having the lapse count against you.
If possible, attempt to reinstate your policy. If you’re past the grace period, you should still attempt to reinstate your policy with your previous insurer. You would be required to fulfill your outstanding balance but the result would be continuous insurance with no coverage lapse. Otherwise, you would need to shop for car insurance and likely pay higher rates due to the lapse.
Shop Around for a New Auto Policy
If reinstating your auto policy is impossible, finding a new carrier should be your next step. However, you will likely face elevated rates since insurers consider lapses in coverage a high-risk indicator. Therefore, you will need to compare rates from multiple insurers to secure the lowest rate possible.
After buying your new policy, be sure to store your updated proof of insurance card in your glove compartment. It may take a few business days to arrive in the mail but you should be able to access an electronic copy in the meantime depending on your insurer.
Notify your lender ASAP. If you have an outstanding car loan, then your lender will likely require you to maintain full coverage. Creating a lapse in coverage is already breaking the agreement but if you quickly secure a new insurance carrier, they need to know. Otherwise, they may buy a high-cost policy on your behalf and you’ll be responsible for making the payments.
Seek Other Transportation
Driving while uninsured is rarely a good idea, so you may want to look into other forms of commuting if you canceled your insurance or were dropped by your insurer. Taking the bus, bicycling and carpooling are all forms of transportation to get you where you need to go. If these transportation alternatives do not work for you, you should look into reinstating your previous auto policy or purchasing a new one.
What Happens if You Have an Accident With Lapsed Insurance?
Without insurance coverage, you would face the full financial burden of repair bills and medical expenses in a car accident you caused. These expenses would normally be covered under the liability portion of your policy but the full cost would now be out of your pocket. If the victims of the accident sue you for their losses, then you would also pay out-of-pocket for lawyer fees and settlement.
Driving without car insurance is illegal in most states, and getting caught can result in fines, imprisonment and the suspension of your driving privileges. Fines can range from $100 to $5,000 depending on your state and a judge may require you to file Form SR-22. This is a certificate of financial responsibility that proves you are maintaining auto coverage and your insurance company will notify the DMV if your coverage lapses.
Will My Auto Insurance Rates Increase After a Lapse?
A lapse in your auto coverage will almost always increase your auto insurance rates if you’re unable to reinstate your policy. Coverage lapses are red flags to auto insurers that suggest you are a high-risk driver. After all, lapses typically occur when you have multiple recent accidents and moving violations or you’re unable to meet your monthly premium payments.
Shopping around done right saves you time, money and creates no lapse in coverage. SmartFinancial’s FREE online tool matches you with an auto policy based on your answers to your coverage needs and budget. Just enter your zip code below or call 855.214.2291 to receive your free car insurance quotes.