If you have ever talked with an insurance agent to get a car insurance quote, you may have been asked about a lapse in coverage. How you answer that question can impact how much your insurance coverage will cost and even if coverage is available to you.
- Car insurance lapses usually occur for non or late payment, or when there are multiple driving infractions or serious moving violations, like a DUI.
- Lapses are seen as a negative risk factor by insurance companies and can increase how much you pay for car insurance.
- You can avoid a car insurance lapse by joining an auto payment program or paying a lump amount at the beginning of the policy term.
It’s an important question for insurance companies, who view lapses negatively when making policy decisions. Since it can have a major impact on your finances, be sure you understand what a car insurance lapse is and how it can affect you in the future.
Car Insurance Lapse Defined
In almost every state, liability car insurance is mandatory and is required to operate a car, truck, motorcycle, RV, or commercial vehicle. If for some reason you lose coverage, then the car insurance lapse meaning becomes especially important.
Depending on the insurance company, if you don’t pay your insurance premium within the specified time, your policy is considered lapsed or cancelled. If you don’t have a replacement policy, then you are essentially driving without insurance and could face state penalties and fines.
If you get into an accident while your insurance is lapsed, you are considered an uninsured motorist with all the attached consequences, plus you are responsible to pay for damages out of pocket. In fact, the other driver might take additional legal action that can result in future financial consequences that impact things like wages and your credit history over the long term.
How is a Car Insurance Lapse Viewed by Insurance Carriers?
Car insurance companies view a lapse in coverage as a definite negative. Whether you choose not to drive or you lose access to your driving privileges altogether, insurance companies see it as a negative risk factor for future behavior.
Just like when you have an excessive number of tickets or a bad credit report, a lapse in coverage is factored into the insurance company’s coverage decision and can negatively impact your chances of getting coverage with a reputable company.
Can a Car Insurance Lapse Affect Rates?
The answer is absolutely! While most insurance companies will allow you to keep your policy as long as you pay within a pre-defined grace period, many will institute a rate increase either immediately or when your policy is reissued.
How much of an increase is a matter determined on a company-by-company basis, but it is often as much as 8-10% if your policy is lapsed less than 30 days and, if more than 30 days, that increase can grow to as much as 30–35%.
Are There Other Possible Financial Consequences?
Yes, in addition to increased premiums, you might also lose insurance discounts that you currently have, such as good payment or early payment discounts.
Additionally, if you lease your car or have a loan on a vehicle, a lapsed policy can trigger a repossession by your bank or leasing company. Having a full coverage policy is always a contingency on loan or lease agreements and, if you don’t keep a policy in force that protects your loan or lease company, they will take possession of their property sooner rather than later.
Car Insurance Lapse Grace Period
Most insurance companies have a grace period between 10 and 20 days, unless defined differently in your state. That means you have a certain number of days after your payment due date to submit your insurance premium and keep your policy in full force.
Insurance companies will make an attempt to contact you before outright cancelling your policy. You may receive a letter during the grace period letting you know the possible consequences of non-payment. They will also give you instructions on how best to make a payment so that you are up to date by the end of the grace period.
Common Reasons for a Car Insurance Lapse
Insurance companies are in business to make money and they are expert at weighing every option to ensure their risks are mitigated through their decisions to offer coverage. When that coverage lapses, they are usually swift to cut their losses and move forward.
Here are several ways that car insurance might lapse:
- Missing a Payment — Insurance companies understand that a payment might be late on occasion and have built in the grace period policy to accommodate those times. If you miss a payment completely, or continually pay late, your insurance company will notify you by mail of their intention to cancel your policy. There is usually a final date by midnight that payment must be received, or the policy will suffer cancellation.
- Forgetting to Renew a Policy — Most car insurance policies usually renew automatically after six-months or a full year. If you have a policy that doesn’t have an automatic renewal clause, then it will have to be renewed prior to the end of term date. Forgetting this renewal date will cause a policy to lapse.
- Being Dropped by Your Insurance Carrier — You can be dropped by your insurance company following an at-fault accident, a series of tickets, or a serious moving violation like a DUI or DWI.
- When You Lose Your Driver’s License — Most insurance companies will cancel your insurance policy if they are notified that your have lost your driver’s license.
- If You Misrepresented Yourself — Your car insurance can be cancelled if you gave false of misleading information on your original insurance application.
Do You Still Need Car Insurance When You Don’t Own a Car?
If you choose not to own a car, but occasionally drive someone else’s vehicle, you may want to consider a non-owner policy. A non-owner policy protects you if you get into an accident.
Read more: Non-Owner Car Insurance: Do You Need It?
However, if you live with someone who’s car you borrow occasionally, you may not need to worry about a non-owner policy. Their policy will cover you in most circumstances although it’s always a good idea to double check with the insurance company to be sure.
Similarly, when you rent a car or drive a car for work (during work hours of course), that vehicle should have insurance coverage that covers you in the event of an accident or other problem.
How to Avoid Insurance Lapse
It’s always a good idea to avoid a car insurance lapse if possible. No one wants to be classified as a risky driver or to pay more for insurance than necessary.
Here are several ways to keep your insurance current:
- Auto Payment — Sign up for auto payments as soon as you get your new insurance policy. It keeps you from ever experiencing a late payment, plus most insurance companies give a discount for auto pay participation.
- Exercise Responsible Driving Habits — Seems like this one is too easy…be careful! By being responsible when you drive, you lessen the risk of tickets, accidents, or other catastrophes.
- Perform an Annual Insurance Review — Strong financial planning includes doing an annual insurance review for all your insurance policies (including homeowners or renters, health, life, etc.) to see that you are paying the lowest premiums possible.
It’s easier than ever with online quote engines that compare rates based on your personal information.
- Make Sure You are Getting All Discounts — Review your policy to be sure you are getting all the discounts that you’re eligible for, including any new discounts or ways you can change coverage to increase discounts, e.g., be sure to take advantage of multiple policy discounts for home, life, business, etc.
Will Suspending Coverage Keep My Policy from Lapsing?
Maybe you have heard about suspending your coverage and want to consider that option. First, check with your insurance company to be sure they offer a suspension option for your particular policy. Then, what criteria needs to be met to qualify for and sustain the suspension.
Suspensions can be great for people who are studying abroad or moving out of the country and don’t plan to take their car. It is in lieu of a policy lapse and keeps you in good standing with your insurance company.
If you are still maintaining a car or keeping one in storage, you may need to keep minimal insurance coverage for liability only (assuming it’s paid off). If the vehicle is leased or has an active, outstanding loan, then you may be required to keep full coverage regardless.
Last, you may need an affidavit that’s filed with your local DMV attesting that you won’t be driving the vehicle as determined on a state-by-state basis.
Car Insurance Lapse Penalties by State
Some states have penalties and fines when your insurance lapses and some require insurance companies to report lapses when they occur.
If you drive without insurance, you face even harsher consequences.
The good news is you can find information about insurance guidelines in your state, so there is no guesswork needed.
Does Letting Car Insurance Lapse Affect Credit?
No. Paying your insurance late or letting car insurance lapse doesn’t affect your credit score. But the flip side is that paying on time doesn’t help your score either.
In effect, the insurance industry uses your credit score to assess risk factors, but they don’t report financial information to the credit bureaus.
What to Do if Your Car Insurance Lapses
First thing to do is contact your insurance agent and let them know what’s happening. They can help you with options and tell you how to proceed.
If you have only missed the payment date by a few days, then making the payment quickly can avoid all kinds of problems. If that’s not an option, see if your insurance carrier is able to work with you on a payment plan.
When the payment was left unpaid long enough to have the policy cancelled, you may need to reapply for a new policy. Depending on the circumstances, the insurance company may initiate new coverage, but in all likelihood, the premium will go up.
If for some reason the insurance company declines processing a new policy, you may be required to pursue coverage through a non-standard insurer or high-risk insurer. These types of policies are expensive and often have limited coverage options.
How to Find New Coverage Following a Car Insurance Lapse
Car insurance lapses happen. If your insurance rates have been raised following a lapse, it’s always a good idea to check current insurance quotes to see if you are paying the best rate possible.
Not all insurance companies weight car insurance lapses the same and there may be several options available to you. There’s no penalty and no fees to compare quotes and it only takes a few minutes.
To check it out — simply and easily — just try one of the available quote offers, such as the Einsurance.com car insurance quote engine. By entering some simple personal information, you can find offers that are easy to compare and give you the best deal for your circumstances.
To Sum Up
Hopefully, you won’t ever have to deal with a car insurance lapse. They can be costly and should be avoided. If you find yourself in a position where you may miss a payment or may face a license suspension, contact your insurance person early. Most insurance agents will do what they can to help.
Contact Einsurance at 866-845-3808 for help with all your insurance needs or join us at einsurance.com to read the latest on insurance of all types.