Whether you simply forget to make a payment or if your policy is canceled by your carrier for other permissible reasons, an auto coverage lapse can be quite costly in the long run. Why is a lapse in auto insurance bad? Is there a grace period? How can you get covered again? For answers to these questions and more, keep reading below.
What is a lapse in auto insurance?
If you go any period of time without insurance coverage on your vehicle, that is called a lapse in coverage. You might experience a lapse in coverage for one of the following reasons:
- If your policy is canceled or not renewed by the insurer
- If you let your policy run out without renewal
- If you switch policies/insurers and have a space between your previous policy’s end date and your new policy’s start date
Essentially, if you fail to pay your premium (whether that’s monthly, biannually, or annually), for one reason or another, you’re in danger of a lapse in coverage. If you drive recklessly or break any terms as specified in your policy, you could face a policy cancelation or nonrenewal and a lapse in coverage. Switching insurance companies? If you don’t have your new policy start as soon as your old policy ends, that gap in coverage is a lapse.
What happens when your auto insurance lapses?
If you have a brief lapse in coverage, you’ll typically be able to address it before it becomes a major issue by acting promptly (which we’ll discuss below). But what happens if you truly let your coverage run out? Well, nothing good!
For starters, (1) you’ll be driving without insurance, and while insurance laws vary from state to state, every single one of them requires some form of coverage or proof of financial responsibility to get on the road. If you’re caught driving without insurance, you could face the following consequences:
- Tickets for no insurance
- Steep fines
- Suspension of your license
- Suspension of your vehicle’s registration
- Civil or criminal penalties in the event of an accident
- Potential jail time
- Being forced to keep an SR-22 (or comparable form) on file for several years
What about accidents? Well, if you’re in a car crash without insurance, you’ll be paying for everything out of your own pocket. Depending on how many vehicles are involved and if people are hurt, the financial burden could be crushing.
In addition to breaking the law and facing the associated repercussions, (2) you could also see your insurance rates increase in the future. Your insurance rates are calculated by looking at a number of factors, and if you have lapses on your record, an insurance company might see you as a bigger risk to insure. A history of missed payments or a policy canceled for careless behavior behind the wheel are warning signs to insurers.
Depending on where you live, (3) you might lose your privilege to drive or face serious fines. Some states, like North Carolina, require insurance companies to notify the Department of Motor Vehicles if your liability insurance lapses for any reason. In other words, you wouldn’t only get in trouble if you were pulled over or involved in a wreck without insurance. You definitely don’t want your license plate revoked, your driver’s license suspended, or to be subject to any fines.
Lastly, if you took out a loan to purchase your vehicle or are currently leasing, (4) the car in question could be repossessed. If you’re failing to protect the vehicle your lender has a financial interest in, they won’t be happy, and they could come to reclaim it or they may force place coverage and add the cost to your payments.
How can I get covered again quickly?
While it’s best to avoid any lapses at all, a short lapse can typically be corrected if you act quickly. If you miss your payment, your insurance company will send you a notice of cancelation, giving you a specific number of days to cure the default before actually terminating your coverage, according to Policygenius. This period of time is often referred to as “grace period,” allowing you to catch up on missed payments or give you time to avoid a full cancelation and a serious lapse in coverage.
When you first hear that your policy could be canceled, immediately reach out to your insurer. You might have a chance to reinstate your policy if it’s for something small like a missed payment, and if you act quickly, it could be reinstated as if this small lapse never happened. If your policy can’t be reinstated, it’s still important to act quickly. In this case, you should start shopping for a new policy immediately so that you’re covered when your grace period on the old policy ends.
No matter what, the main takeaway is to move fast. ValuePenguin has data showing that short lapses in coverage are far less costly in the long run than longer ones, so the quicker you get covered again, the better.