What happens with a lapse in car insurance policy?

Part of being a responsible and law-abiding driver is obtaining sufficient auto insurance. In almost every state, vehicle owners are required to acquire a minimum amount of coverage to legally drive. The Insurance Information Institute defines auto insurance as a “contract between you and the insurance company that protects you against financial loss in the event of an accident or theft.” Typically, the driver will be responsible for paying a monthly or yearly premium, and in exchange, the insurance company may offset the losses incurred by a covered accident as outlined in your policy. But what happens if you miss a payment? 

A lapse in a car insurance policy isn’t ideal but is more common than you think. Infinity Insurance Agency, Inc. (IIA) understands the stress and uncertainty that can accompany a gap in auto insurance. If you’ve missed a payment or let your policy expire, don’t stress! A lapsed policy can typically be reinstated without significant hassle.  

What is a lapse in car insurance?

A lapse in car insurance coverage occurs when you may own or be driving a car but fail to maintain coverage. While lapses in car insurance may be common, driving without coverage can potentially be both costly and illegal.  

Common reasons for lapses in coverage include, but are not limited to:

• Missed payments
• Policy expiration
• Switching insurance companies
• Being dropped by your insurance company

It is important to maintain sufficient auto insurance coverage as driving without insurance can incur legal penalties that range from fines and license suspension to jail time. In addition, if you are involved in an accident in which you are at fault while you no longer have active coverage you may be responsible for paying out of pocket for the other driver’s damages and medical expenses.  

Is there a grace period?

Wondering if your car insurance lapse has a grace period? Typically, if you’ve only missed a payment by a few days your insurance policy will not be cancelled. Most insurance companies will offer some sort of grace period for late or missed payments. Nevertheless, it is important to check in with your specific insurer, as these grace periods can vary.  

Please note, that while most states are required to give you a written 30-day notice before canceling your policy, some states have specific laws regarding policy cancellation. Be sure to check your insurance policy to understand what time limits will apply.

Potential consequences of a lapse in coverage

Depending on your insurance company, a lapse in coverage could result in a wide array of penalties and consequences including:

• Legal penalties - This can potentially include fines, license suspension, or vehicle registration issues. Depending on your state, the DMV may be notified of your lapse and suspend your license or fine you. You could even be tasked with obtaining an SR-22.
• Higher insurance rates - One of the most common consequences of a lapse of coverage is a higher insurance rate. According to data from Bankrate, policyholders with a lapse in car insurance pay an average of $60 more than the national average for minimum coverage insurance.  
• Repossession - If you lease your vehicle, it is possible your car could be repossessed as many lenders require full, continuous coverage as part of their lease terms.  
• Financial risks - Driving without proper coverage may put you at risk of being financially responsible for damages that might occur during your lapse in coverage. You may also be left vulnerable to instances of theft, vandalism, or other covered losses if you let your comprehensive coverage lapse.  

Some states have specific penalties for driving without insurance. At the time of publishing in California, a first-time lapse in car insurance can result in a penalty assessment fee plus a fine between $100-200. In Florida, first-time offenders will need to pay a fine of $150 and receive a license suspension which will last until a reinstatement fee is paid and proof of noncancelable coverage is provided. Lastly, in Texas, your first offense will result in a fine ranging from $175–$350.

How to avoid a lapse in car insurance

In a perfect world, we would never miss a premium payment! However, mistakes do happen and without proper communication or reminders, it can be easy to forget to pay your bill or update your policy.

Potentially avoid a lapse in coverage by:

• Opting for automatic payments - This is an easy way to stay on top of your payment schedule.
• Communicating with your insurer - If your premium is too high or you simply want to take your car out of service, it is important to speak with your insurer. Remember that if you simply stop paying your insurance, your policy will go into cancellation, and this could affect your future coverage rate. 
• Reviewing and updating your policy regularly - If budgeting is an issue, take the time to go over your policy and see if any changes can be made. You could be eligible for potential savings such as good driver or student discounts.  
• Maintaining a clean driving record - Insurance companies may drop you if you are engaged in risky driving behavior which could result in a lapse in coverage.  

What to do if your car insurance lapses

If you have let your car insurance lapse, don’t panic. Take a moment to review the following steps and evaluate the situation.

• Reach out to your insurance company - Call your insurance company and determine if your coverage has been canceled and for how long. If you simply missed a payment, it’s possible your policy has not been canceled.
• Reinstate your policy - If your policy is canceled, ask if you can reinstate your previous policy. In cases like this, you will need to pay the past-due balance, and you'll be covered without any lapse.
• Purchase a new policy - If your old policy cannot be reinstated, you may need to start a new policy. Fortunately, many insurance companies may be able to extend coverage to you right away.  

Keep in mind that depending on the state in which you live, you may have specific rules to adhere to regarding reinstating coverage after a lapse. In some states, a lapse can also mean you’ll need to get an SR-22 before you’re allowed to drive again. Furthermore, some states, such as California and Texas, have unique laws that allow your coverage to be canceled automatically.

The importance of continuous auto insurance coverage

Continuous auto insurance not only help can save you money in the long run, but by avoiding gaps in coverage, you may avoid the potential financial fallout of incurring liability for damages or injuries to others due to a car accident for which you are at fault. Learning the importance of auto insurance as well as your minimum legal obligations, can allow you to make more informed decisions about your level of coverage.

Whether you forgot to submit your monthly payment or had your coverage canceled due to a serious driving incident, a lapse in coverage can lead to a sticky situation. From financial fallout to possible license suspension, it is important to understand the consequences of a coverage gap and how to remedy this oversight. Infinity Insurance Agency, Inc. (IIA) understands that sometimes your coverage can fall by the wayside. We encourage all drivers to stay proactive and on top of their coverage by contacting their trusted agent for guidance.

If you have let your coverage lapse or simply want to review your insurance options, call 1-855-478-3705 to speak to one of our agents today!