Thinking about getting rid of your car insurance? It might seem like a good idea since you’ll save money by paying one less bill, but you should think twice before doing it.
Whether you dropped your car insurance coverage while you moved abroad or you just forgot to pay your bill, a lapse in coverage will sting the next time you purchase a policy.
Insurance companies look at at a lapse in coverage to mean that you’re a higher risk than those who keep their policies going. Even a one-day lapse in coverage can lead to higher rates.
Sometimes, a lapse in coverage can raise your premium by 12 percent. And sometimes insurance companies choose not to insure you because of a lapse in coverage.
Let’s take a look at the other ways a lapse in coverage affects you and what you can do to stop it.
What’s a lapse in coverage?
A lapse in coverage is when you go from having auto insurance to not having it. It’s still a lapse in coverage, even if it’s just for a day or two.
To an insurer, a lapse in coverage looks like you chose to drive uninsured or you can’t keep up with your payments. Insurance companies look at this as risky behavior that increases the likelihood of you getting into a car accident.
So to offset a potential future claim from you, car insurance companies will increase your premium. But this premium raise won’t last forever. As long as you have continuous insurance, your rate will drop eventually.
How can I have a lapse in coverage?
Here are some situations where it might lead you to have a lapse in coverage. You either:
- Paid your premium too late
- Forgot to pay your premium
- Didn’t renew your policy
- Cancelled your policy due to moving abroad
- Had your policy cancelled by your insurer because of too many claims, accidents, or tickets
- No longer drive so you cancelled your policy or didn’t renew it
It’s even possible to have a lapse in coverage while switching car insurance companies. If you’re not careful, you’ll leave a gap between when your old policy ends and when your new one begins.
Make sure you don’t ditch your old policy too early. Buy your new policy first before your current one ends.
How does a lapse in coverage affect me?
It might be one less bill for you to pay, but there are several consequences for a lapse in coverage.
When giving you a quote, insurance companies look at a variety of factors, including your driving record and insurance history.
Insurers favor drivers who have a continuous insurance record. If you have a lapse in coverage, you’ve broken your insurance streak. And you’ll be given a higher quote because of this.
It will vary based on the circumstances, but in a study done by Insurance Quotes, a lapse in coverage can raise your premium by 12 percent once the policy has been reinstated.
Sometimes it depends on how long you’ve been without insurance. Some companies give you a break if your policy has been lapsed for less than 30 days by not charging you as much as someone without insurance for more than 30 days.
Driving without insurance is not only illegal, but exposes you to some potentially huge costs. Especially if you get into an accident.
If you cause an accident and hurt someone else or damage their car, you’re responsible for paying for everything out of pocket. And the same goes for any damage to your own car.
And in the event that you can’t pay, you could have your assets seized and you could face legal action.
License suspension and fees
Every state requires drivers to have a minimum level of car insurance. So if you let your insurance lapse, you’re violating the law.
In some cases, the DMV in your state could be notified that you don’t have insurance. They could suspend your license or fine you.
If you lease or finance your car, your vehicle could be repossessed.
Most lenders require full coverage insurance on the car, as part of the terms of the loan or the lease.
What do I do if I have a lapse in coverage?
The best thing to do is call your insurance company as soon as you can. Ask if you can get your old policy reinstated.
If you’re able to pay your car insurance bill within the grace period, your policy should be reinstated. Depending on your insurance company, you might have to pay a fee for reinstating your policy.
However, if you’re trying to pay once the grace period has ended, it’s a trickier situation.
Your policy most likely has been cancelled and you will need to get a new one. Try to get a new policy as soon as possible and minimize the time you go without insurance.
What can I do to prevent a lapse in coverage?
Depending on what the cause of the potential lapse is, there are steps you can try and avoid it.
If you’ve sold your car and you don’t plan on getting a new one, consider getting added to a family member’s policy as a driver. This still counts as continuous coverage.
In the case where your car is sitting in your garage not in use, you can also reduce coverage on it so your premiums are lower.
If you know you can’t make your next car insurance payment, call your insurance company.
You can work with your insurance rep to figure out how to save money on your policy. That might mean to temporarily increase your deductible or reduce your coverage.
Get a couple quotes from different insurance companies to see if you could be getting a better deal somewhere else. The savings might not be huge, but saving a few bucks is better than nothing.