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What to Do if Your Car Insurance Policy Lapses

Find out what steps you should take if your car insurance policy lapses and obtain coverage as soon you as can before driving again.

If you miss paying a utility bill, you’ll be hit with a penalty charge and a threat to terminate your service.

Worst-case scenario, your service will be disconnected, and you’ll be required to pay a $50 to $100 reconnection fee.

But if you lapse on your car insurance, all kinds of bad things can happen, and you may end up paying for the breach for several years.

What Happens if Your Car Insurance Policy Lapses?

Except in New Hampshire, driving without insurance can carry some pretty heavy penalties, especially if you’re caught by police.

That’s only the short-term problem.

Car insurance premiums are frequently increased after a lapse in coverage, which can continue for several years.

But it can get even worse – a lot worse.

If you get into an accident during the time when your policy has lapsed – even if only for one day - you won’t be covered.

It won’t matter that you had coverage yesterday, or even expect to have it tomorrow. If the policy is not in force at the time the accident takes place, you will not have car insurance coverage.

If the accident is determined to be partially or entirely your fault, you’ll be required to pay out of your own resources.

Driving uninsured could lead to lawsuits and legal action against you that could leave you in financial ruin. For example, if you’re determined to be at fault in an accident and you have no insurance, you could be facing asset seizure and wage garnishment.

The other party’s insurance company may pay the claim under an uninsured motorist provision, then pursue you for recovery.

The Ultimate Cost of Allowing Your Car Insurance to Lapse

With the number of uninsured drivers increasing, states are being forced to find out directly from insurers when drivers have missed bill payments. This is usually done through automatic electronic notification from the insurance company to the department of motor vehicles.

Not only are there penalties for driving uninsured, but either your license or registration, or even both, can be revoked.

The table below lists state penalties and car insurance premium increase percentages for the 10 largest states for drivers who lapse policies (Source: CarInsurance.com):

Car insurance lapses: State penalties & premium hikes

State Fines Registration/license suspension Vehicle impounded SR-22 Premium increase
California $100-$200 No Yes No 36%
Texas $175-$350 No No Yes 5%
Florida $30 Both Yes No 8%
New York $150-$1,500 + up to 15 days in jail Both Yes No 3%
Pennsylvania $300 Both Yes No 1%
Illinois $500-$1,000 Both No No 8%
Ohio $100 License No No 19%
Michigan $200-$500 + up to 1 year in jail License No No 14%
Georgia $200-$1,000 + up to 1 year in jail Both No Yes 13%
North Carolina Up to $1,000 + 3 points Both No No 31%

One other point, if you have a loan on your vehicle, or lease a car, your lender or leasing company can repossess the car for lack of coverage. Lenders and leasing companies require full coverage.

When to Buy a New Policy

Determining when to buy a new policy will be based on when and how the lapse happens, or even if it hasn’t happened yet. For example, if you know your policy is about to expire, the sooner you reach out to your insurer, the better.

Your policy can easily be renewed to avoid any lapse in coverage, especially if you plan on staying with the same company.

Another example is if your policy is about to expire, and you know you want to switch companies. Communication is key, starting with your current insurer. Let them know that you won't be renewing.

After that, you’ll want to shop around and compare other companies until you find the right one.

Once you find that perfect match, you can start a new policy with your new insurer.

The important thing to remember is that you’ll want to make sure that you’re covered by your new policy by the time your old one expires so you can avoid a lapse. You don’t want to be driving on the road without insurance, even for a day or two.

Let’s say you miss a payment and it’s only been one or two, days or even a week – call your insurer immediately. They may understand that mistakes happen, and life gets in the way. They’ll most likely allow you to pay the bill right away and move on as normal, especially if you’ve always paid on time.

That’s not to say that it’s fine to miss a payment, and it’s possible you may not have a forgiving insurer. But the best approach is always to try and resolve the issue with your current insurance company first. If that’s not possible, it’s time to start shopping for a new policy.

How to Buy a New Policy

Buying a new policy after a lapse in coverage will bring its own set of challenges.

Unfortunately, most insurance companies will consider you a higher risk for allowing your insurance to lapse.

A lapse in coverage shows your insurer that you’re either incapable of maintaining your coverage, or worse, you’ve decided to drive uninsured.

Finding an insurance company that specializes in high-risk drivers may help you in your quest to find the right policy after a lapse. You may not consider yourself high-risk, and you may not be a high-risk driver, but know that a lapse in your coverage can put you in a high-risk pool for insurers.

The reason behind the lapse in coverage will play a role. Unless you're a new driver, having little or no insurance history poses a threat. Since insurers assess risk differently, we strongly suggest shopping around and comparing prices. Much like any insurance, prices between different companies for the same policy or a better policy could be hundreds to thousands of dollars.

If you find yourself looking for coverage from a different insurance company because of a lapse with your previous insurer, it’s not going to be a walk in the park. A lapse makes you higher-risk, so you’ll most likely see higher rates. This is where your driving history, specifically good driving history, will benefit you.

One of the most significant discounts auto insurers offer is continuous coverage.

That is:

Your premium will be lower if you’ve maintained continuous coverage for at least the previous five years, or since you began driving.

A lapse in that coverage – even through another insurer – will make that discount go away. The result will be a higher premium for several years.

Another option may be to list yourself as a driver on a family member or friend’s policy. This is especially helpful if you don’t have a car. As long as you're listed as a driver on an insurance policy, you won't be treated as high-risk when getting insurance in your own name.

Insurance Policy Lapse Grace Period

Always check with your insurer on the rules and regulations of the company's grace period. As stated before, the reason behind a lapse in coverage will have a lot to do with how your insurance will be moving forward.

A grace period can vary between one and 30 days. Don’t rely on that time frame.

For example, if your bill isn’t paid, your insurer can stop your coverage immediately (and notify your state department of motor vehicles). The good news is that insurers are required by law (depending on your state of residence) to inform you 10-20 or even 30 days prior to cancelling your policy.

Reinstatement of your coverage to avoid a lapse may be an option depending on your insurer. If your policy is canceled due to lack of payment, making the payment or payments may allow you to reinstate your coverage.

Some insurers may require payment of a reinstatement fee, but it may avoid a lapse in your coverage. If your lapse exceeds your insurer’s grace period, reinstatement may not be an option. Some insurers will not reinstate, and you'll have to find coverage through another insurer.

There are also differences in how reinstatement will work. For example, one company may allow you to continue your current policy after a lapse. However, if you’re involved in an accident during the time of the lapse, they probably won’t pay the damages. But another company may cancel your original policy, and require you to apply for a new one.

What if Coverage is No Longer Needed?

If you’ll no longer be driving a car, coverage won't be needed. Make sure that your policy covers you up until the day you sign the title over to the new owner.

Canceling your insurance when you no longer have a car will not affect your insurability.

However, if you cancel your insurance while you still have a car, a lapse will be on your record for any future insurers to see. This will make it difficult on premium rates if you decide to get a car down the road.

Some insurers won't charge a cancellation fee; others may charge 10% of the remaining premium, depending on the cancellation policy of your insurer and the time frame of your policy. You may be required to sign a cancellation letter by your company. If that’s not a requirement, ask for your cancellation notice anyway, so you’ll have proof.

If your driving situation has changed and you’ll still be driving often without owning your own car, a non-owner car insurance policy may be the way to go. They tend to be a great deal cheaper than owner policies. Non-owner policies are mostly for high-risk drivers who need a liability policy to keep their driver's license. But these policies can also be a good choice for drivers who rent cars frequently or want to avoid a lapse in coverage. Just know that like any other policy, rates will be based on factors like your driving history.

If you no longer drive as much or your vehicle is in storage, some insurers offer discounts on rates. A registered vehicle must still have insurance regardless of use.

Bottom Line

There are many ways to avoid a lapse in coverage. If you find that you tend to forget about paying your bills, most insurers will allow for an automatic payment system to be put on your account.

If it’s time to renew your policy and you feel you’re paying too much, always reach out to your current insurer to see if there are any discounts available to you. If not, it may be time to change companies, at least if you're able to find the same coverage for a lower rate. Just be sure there’s no lapse in between policies.

The penalties involved with driving uninsured can be catastrophic, especially if you find yourself in an accident that’s determined to be your fault. It’s not an exaggeration to say it has the potential to be a life-changing event.

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