Understanding Auto Insurance Lapse: When Does It Occur?

A car insurance lapse is a period of time when you own a car but don't have car insurance coverage. This could be due to a missed payment, your policy not being renewed, or you were dropped from your insurance company. A lapse in coverage, even for a day, can lead to fines, penalties, and higher premiums. It is illegal to drive without insurance in most states, so it's important to get insurance as soon as possible.

What to do if your auto insurance lapses

A car insurance lapse is a period of time when you own a car but don't have car insurance coverage. This could be very costly, as you may have to pay out of pocket for injuries or damages if you get into an accident. A lapse in coverage can occur if you don't pay your car insurance premiums or if your insurance company drops you.

If your car insurance lapses, don't panic, but take care of it quickly so you can get back on the road. Here are the steps you should take:

Contact your insurance company

Find out what happened. Did you miss a payment? If so, ask if you can get your policy reinstated. If the issue is due to non-payment, your insurance company may be able to reinstate your policy, especially if it hasn't been long since the missed payment. You may be able to maintain continuous coverage without a lapse by paying the past-due balance.

Shop around

If your insurance company isn't willing to reinstate your policy, consider switching companies. Contact other insurers to see if they can offer you a policy, but be honest about your lapse—your insurer will find out eventually, and they may cancel your policy if they discover you withheld this information.

Get a new policy

If you can't reinstate your previous policy, you'll need to purchase a new one as soon as possible. Driving without insurance is dangerous and illegal. Even a one-day lapse in coverage can lead to significant consequences. Starting a new policy may be more expensive, but it's crucial to be insured before you drive.

Avoid driving uninsured

If you're unable to make your car insurance payment, it's important to avoid driving without insurance. The consequences of driving uninsured can be severe, including fines, license suspension, and even jail time in some jurisdictions. If you must drive, get back onto an insurance policy as soon as possible.

Consider suspending your policy

If you won't be using your car for an extended period, consider suspending your insurance policy instead of letting it lapse. Some insurance companies allow you to suspend your policy for a specified period, such as when you're deployed overseas or studying abroad. Suspending insurance is not considered a lapse and can help you avoid raised rates.

Grace periods

A grace period is the time you have to pay overdue car insurance premiums before your policy is cancelled. Grace periods vary by insurer, but they can be as short as 24 hours or as long as 30 days. Most grace periods are between seven and 30 days. In some cases, a company can extend the period to 45 days if you're trying to add a new vehicle to the policy.

State laws require insurance companies to notify you before they cancel your policy. This period is usually between 10 and 20 days. During this time, you can pay any outstanding balance and fees to avoid a lapse in coverage.

If you receive a cancellation notice, contact your insurance company as soon as possible to discuss your options and make the payment.

Consequences of a lapse

Lapses in auto insurance coverage are somewhat common, but they can have serious consequences. In almost every state, carrying auto liability coverage is required for drivers. A lapse in coverage can occur due to non-payment of premiums or being dropped by your insurance company. Regardless of the reason, it's important to resolve the issue quickly to avoid penalties and being seen as a high-risk driver.

Financial Liability

If you get into an accident while your auto insurance has lapsed, you will be financially liable for all expenses and property damage. This includes injuries to others and damage to their car, which can result in enormous and life-changing expenses. The other driver could also take legal action, potentially costing you money or future wages.

License Suspension or Fine

In some cases, the department of motor vehicles will be notified that you are without insurance, which can lead to license suspension or fines. For example, in New York, drivers can lose their license and vehicle registration for a year and must pay a $750 reinstatement fee. Additionally, you may be required to carry an SR-22 for several years, resulting in added expenses on your next auto policy.

Rate Increase

Even a short lapse in auto insurance coverage can result in higher rates when you reinstate or purchase a new policy. Insurance companies may consider you a riskier driver, and starting a new policy is typically more expensive than maintaining continuous coverage. The penalty for a lapse is generally higher if it lasts longer than 30 days, with average rate increases of 8% for lapses under 30 days and 35% for lapses over 30 days.

Repossession

If your vehicle is leased or financed, a lapse in insurance coverage may result in repossession by the lending or leasing company. This is because most lenders require comprehensive and collision coverage as part of the loan or lease terms.

Difficulty in Obtaining Future Coverage

A lapse in auto insurance coverage can make it more challenging to obtain coverage in the future. Insurance companies may view you as a high-risk driver, even if you have a good driving record. This could lead to higher premiums or difficulty finding coverage at all.

How to prevent a lapse

Lapses in auto insurance coverage are often unintentional, but they can cause a lot of problems. If you're involved in an accident without insurance, you may have to pay for damages and medical bills out of pocket. You may also face fines and other penalties, such as the suspension of your driver's license. So, it's important to take steps to prevent your auto insurance from lapsing.

• Practice responsibility: Auto insurance policies are typically cancelled due to non-payment or driving offences. As a vehicle owner, it's your responsibility to consistently pay your car insurance premium and drive safely. Too many tickets or accidents on your record can cause an insurer to cancel your policy, resulting in a lapse in coverage.
• Discuss affordable coverage options: Talk to your insurance provider about any discounts you may be eligible for to help keep your premiums affordable. Some providers may also offer annual reviews to assess your current coverage and adjust or update your policy based on your needs.
• Set up payment reminders: To avoid unexpected lapses, set up a system to remind yourself when your premium is due. That way, you can ensure you don't miss a payment.
• Double-check policy transitions: If you're switching from one policy to another, double-check that there's no gap between the end of the old policy and the start of the new one.
• Contact your insurer if you're not driving: If you plan to stop driving entirely, contact your insurance company to cancel your policy. You may also need to call your local Department of Motor Vehicles (DMV) to find out if there are any state requirements you need to meet, such as handing in your license or cancelling your registration.
• Suspend your insurance if you're not using your car: If you're deployed overseas or not using your car for an extended period, consider suspending your insurance. Some companies allow military members to suspend their insurance while they're away. If you're not in the military, you may need to get an affidavit from your state's DMV stating that you won't be using the vehicle. Suspending insurance is not considered a lapse and can help you avoid raised rates.

How to reinstate a lapsed policy

A car insurance lapse is a period when you own a car but don't have car insurance coverage. This could be because you didn't pay your premiums or were dropped by your insurance company. Driving without insurance is illegal and can result in fines, tickets, and a suspended license. It is also very costly, as you will have to pay out of pocket for any injuries or damages if you get into an accident.

If your car insurance has lapsed, you should contact your insurance company to find out what happened and whether you can get your policy reinstated. Reinstating your policy is much simpler if your coverage hasn't lapsed yet. Most insurance companies will offer a grace period of 10 to 30 days for you to get back on track with your payments. If you pay within this grace period, your policy will be reinstated without a lapse in coverage. You might have to pay the owed premiums plus interest, depending on your insurance company. You might also need to fill out a form or sign a "statement of no loss", which states that you did not have any losses during the grace period and will not file a claim. You may also have to pay a reinstatement fee.

If your coverage has lapsed, your insurance company may not reinstate your policy, especially if it's been over 30 days. In this case, you will have to apply for a whole new policy, which will result in higher insurance rates in the future. However, some insurance companies may reinstate your policy past the grace period, but they will likely charge you a reinstatement fee and raise your rates. You will also have to pay the premiums you owe upfront and sign a "no-loss statement" to certify that you did not experience any losses during the lapse in coverage and will not file a claim.

If your insurance company refuses to reinstate your policy, you will need to initiate a new policy with a different insurer. If you have lost your car insurance due to non-payment, you may be forced into the non-standard auto market and will need to purchase a policy from a private insurer specializing in high-risk drivers. These policies tend to be much more expensive.

Frequently asked questions