INSURANCE LAPSE: How It Affects Car Insurance Coverages & Premiums

Insurance lapse
Bankrate.com

Maintaining continuous coverage for your car insurance will help you keep your premiums low. You may, however, find yourself in a situation where your car insurance has expired. Rectifying this lapse in car insurance coverage as soon as feasible can provide you with peace of mind and financial security in the case of an accident. Car insurance coverage lapse is frequently unintended. If you find yourself in a scenario where your car insurance lapse grace period has expired, there are actions you can do to regain coverage.

What is a Car Insurance Lapse?

A lapse in car insurance is defined as any period when you have a registered car but no car insurance.

A lapse might be as small as one day — any period you go without car insurance qualifies as a lapse. Some insurers, however, may not penalize you for a brief lapse of fewer than two weeks. There could be various causes for a lapse: your insurance expired, your policy was canceled due to a missed payment, you no longer drive, you were deployed, and so on.

#1. If your policy expires due to nonpayment or if you fail to renew it,

A common scenario is that you failed to make a monthly payment or forgot to renew your policy after it expired, causing your company to terminate it. When your coverage expires, your car insurance company may notify the DMV that you are uninsured.

Depending on your state, being uninsured may subject you to fines and other penalties. The longer you wait to renew your coverage, the higher your premiums are going to be.

#2. If you are serving in the military or studying or moving abroad,

You are unlikely to use your car much if you are stationed overseas. The same is true for those who live or study abroad for an extended period of time. Military members can suspend their car insurance through a few firms, including USAA, Geico, and Esurance.

Suspended insurance is not considered a lapse and may protect you from rate increases. If you are going abroad to study or work, you must obtain an affidavit from your state’s DMV indicating that you will not be utilizing the vehicle.

Why Would an Insurance Company Cancel My Coverage?

There are several reasons why an insurance company may cancel your coverage. After a DUI, your insurance carrier may deem you too risky to insure and refuse to renew your policy. If you have bad credit or if you incur too many traffic fines and your license is suspended, your insurer may cancel your insurance.

Your insurance company may also cancel your policy if you:

  • Stop paying your insurance premiums.
  • On your application, you lied
  • Submit a fake claim or lie to an adjuster after a claim has been filed
  • Were diagnosed with a disease that makes driving dangerous.

What Is Car Insurance Lapse Grace Period?

If you’re having difficulties keeping up with your insurance payments, a grace period may help you avoid a lapse in coverage. Many states require car insurance providers to provide a grace period for missing payments, during which your policy will not be canceled and your rates will not increase owing to a lapse in coverage.

If you fail to make an insurance payment, your firm must notify you in advance that they intend to cancel your coverage owing to nonpayment. This car insurance lapse grace period could be as little as a few days or as long as 30 days after your last payment, depending on your business and where you live.

If you’re having trouble paying your car insurance payments on time, talk to your insurance company to prevent having to rely on a grace period (and paying a possible late fee). It’s possible that you and your car insurance provider might work out a payment plan to avoid a grace period and a possible lapse in coverage.

How a Coverage Lapse Influences Car Insurance Costs

If you have a gap in your insurance coverage, your car insurance company may view you as a higher-risk driver and charge you extra as a result. According to our research of Quadrant Information Services data, policyholders with a lapse in car insurance coverage pay an average of $1,861 per year for full coverage insurance, about $200 more than the national average of $1,674 per year.

Those who have gaps in their insurance pay approximately 11% extra for their coverage. It’s also possible that your insurer will refuse to renew your coverage after a lapse. You would have to find a new policy with a new carrier in this situation. Because your insurance is compelled to report your lapse to the DMV in your state, any new insurer will be aware of it and may charge you higher premiums as a result.

Which States Have Penalties for Lapses in Coverage?

Car insurance is required in practically every state in the United States if you own a registered vehicle. Some states regulate this better than others, even going so far as to require firms to notify state DMVs whenever a registered car’s insurance expires. When the DMV becomes aware of your lapse, you risk losing your license and/or registration, as well as facing civil fines and SR-22 filings, among other consequences.

Remember that these fines only apply if you let your insurance lapse. If you are discovered driving without proper insurance, you will most certainly face much harsher penalties.

Here’s what to expect in each state:

StatePenalties
Alabama$200 license reinstatement penalty, then $400 second time
Alaska$100 license reinstatement penalty for the first lapse
Arizona$50 license reinstatement penalty
Arkansas$100 license reinstatement penalty
California$14 registration reinstatement penalty
Colorado$40 license reinstatement penalty
Connecticut$200 license reinstatement penalty
Delaware$100 lapse penalty per vehicle, $5 per day after 30 days
District of Columbia$150 lapse penalty, $7 per day after 30 days
Florida$150 registration and license reinstatement penalty for the first lapse, $250 for the second, $500 for third
Georgia$25 penalty for lapse longer than 10 days, then $60 after 30 days
Hawaii$20 license reinstatement penalty
Idaho$85 license reinstatement penalty
Illinois$100 reinstatement penalty
Indiana$150 reinstatement penalty first offense, $225 for a second offense, $300 for a third offense
IowaNA
Kansas$100 reinstatement penalty for a first offense, $300 for a second offense within one year
Kentucky$40 registration reinstatement penalty
Louisiana$125 lapse penalty for 30 days, $225 for 31 to 90 days, $525 over 90 days, up to $850 max
Maine$50 license reinstatement penalty, $20 to $30 additional penalty, $35 registration penalty
Maryland$150 penalty first 30 days, $7 per day after 30 days, registration penalty up to $25
Massachusetts$500 reinstatement penalty
Michigan$50 registration penalty
Minnesota$30 license and registration reinstatement penalty
Mississippi$30 license reinstatement penalty
Missouri$20 license reinstatement fee
MontanaNo charge for the first lapse of insurance
NebraskaReinstatement penalty of $500
Nevada$250 penalty for lapse under 30 days, $250 for the lapse between 31 to 90 days, $500 for the lapse between 91 to 180 days, and $1,000 for lapses more than 181 days
New HampshireNA
New JerseyRestoration penalty of $100
New MexicoRegistration reinstatement penalty of $30
New York$8 per day civil penalty for lapses under 30 days, $10 per day for the next 30 days, and $12 per day for 30 days after
North Carolina$50 civil penalty for the first lapse, $100 for the second lapse, $150 for the third lapse
North DakotaNA
Ohio$60 penalty, $100 reinstatement penalty for a first offense, $300 for a second offense, $600 for a third offense
Oklahoma$125 administrative penalty, $275 reinstatement penalty
Oregon$75 license and registration reinstatement penalty
Pennsylvania$88 restoration penalty
Rhode Island$50 reinstatement penalty
South Carolina$5 per day lapse penalty, up to $200
South Dakota$50 to $200 license reinstatement penalty, depending on time lapses
Tennessee$50 administrative penalty, $65 license and registration restoration penalty
Texas$100 reinstatement penalty
Utah$100 reinstatement penalty
Vermont$71 license reinstatement penalty
Virginia$145 registration reinstatement penalty
Washington$75 reinstatement penalty
West Virginia$100 registration reinstatement penalty
Wisconsin$60 license reinstatement penalty
Wyoming$50 reinstatement penalty

Although some jurisdictions have greater penalties than others, the bottom line is that you should never let your auto insurance lapse. At the very least, your car insurance premiums are likely to rise, and you may face serious legal consequences.

How Insurers Find Out if Your Insurance Has Lapses

When you get a car insurance quote, you’re frequently asked if you have coverage. If you’ve let your insurance lapse, tell the truth – car insurance providers won’t just accept your word for it.

Car insurers collaborate with state DMVs to keep accurate records of who has car insurance and when they have it. So, while you may be able to receive a lower quotation by concealing the fact that you had an insurance lapse, your insurer will eventually find out.

The best-case scenario is that your insurer will just raise your premiums to what they would have been if you had spoken the truth. However, your insurer may choose to cancel your coverage, leaving you in the same scenario as before – but with two lapses instead of one.

How Insurers Find Out if Your Insurance Is No Longer Active

The first thing to understand about having a lapse is that dealing with it right away can provide you peace of mind and help you achieve your goals. Don’t freak out right away. Your car insurance carrier may offer a brief grace period during which your premiums for lapsed coverage will not be increased.

When you find your policy has expired, take the following actions to get back on track:

  • Contact your insurance company. It’s wise to check with your insurer to see if there has been a lapse or if you are just over late on your payments. You might be able to avoid a lapse by paying your missed payment over the phone.
  • Many insurance companies provide a grace period. This grace period is typically a period of time during which your premiums will not increase owing to a lapse in coverage. You should check with your insurance to see if you qualify for this option.
  • Create a new policy. If you are unable to reinstate your policy, you should begin looking for a new insurance policy as soon as possible.
  • Avoid driving whenever possible. You should probably avoid driving and look for alternate modes of transportation until you have successfully gotten new insurance coverage during a lapse period. In addition to the risk of having to pay for an accident out of pocket, driving without sufficient insurance may result in a suspended license and the need to acquire an SR-22.

How to Prevent a Car Insurance Lapse

Making on-time payments, telling the truth when acquiring coverage or filing a claim, and maintaining a clean driving record are the best strategies to avoid a lapse in car insurance. To avoid coverage gaps, you should also:

  • Contact your insurance company: If you receive a cancellation notice, you should immediately contact your insurance provider. This way, you’ll be able to learn about your company’s grace period, various strategies to avoid termination, and potentially reinstate your coverage before it’s too late.
  • Know when your policy will expire: Pay attention to your policy’s term dates so you don’t forget to renew your insurance coverage (if it doesn’t automatically renew) when it’s time for a new policy.
  • Start a new policy on the same day your old policy expires: When switching car insurance policies, make sure your new policy begins on the same day your old policy expires. Even a single day between insurance can result in a coverage lapse.
  • Request estimates: If you are unable to pay your car insurance premiums, you could request quotes from different firms. A high rate at one insurance provider does not always imply a high rate at another.
  • Examine your coverage and deductibles: If you’re having difficulties paying payments, you could possibly reconsider your coverage. You could reduce your total rates by modifying your policy if you’re paying for more insurance than you need or if your deductible is low.

Will Even a Little Lapse Affect My Premiums?

It depends on your insurer and the reason for the lapse whether a short lapse raises your insurance prices. You’ll obtain the best results if you solve the problems as soon as possible, so your insurer can see that you’re making a good-faith attempt to fix the problem.

Insurance Lapse FAQs

Does insurance lapse affect credit?

The simple answer is no. Although there is no direct relationship between car insurance and credit, paying your insurance premium late or not at all may result in debt collection reports. Debt collection reports do appear on your credit report and can be read by prospective lenders (typically for 7-10 years).

How long does Cancelled insurance stay on record?

Around five years
When you cancel your car insurance coverage, it normally remains on your insurance record for roughly five years, although it can be longer.

Is driving without insurance illegal?

Driving a car on a road or in a public location without at least third-party insurance is banned. Even if the vehicle is insured, if you are not properly insured to drive it, you may be considered to be driving without insurance and subject to penalties.

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