Why You Should Avoid Car Insurance Lapses

The Importance of Maintaining Insurance Coverage

A woman is adjusting the rear-view mirror before she drives.
••• NickyLloyd / Getty Images

When your budget is tight, you may be tempted to cut corners wherever you can. Auto insurance may be one expense you might consider letting it go, but car insurance lapses can come with some major risks.

Before missing a payment or calling to cancel, read on to learn about the consequences of coverage gaps, what to do if your policy lapses, and when it can make sense to stop your coverage. 

Key Takeaways

  • Without car insurance, you can be held personally liable in an accident, lose your license, or face high premium prices the next time you buy insurance.
  • If you let your insurance lapse because you're not driving right now, you can still incur penalties or high costs when you start driving again.
  • If your insurance lapsed, ask to be reinstated by your insurance company or ask a friend or family member to list you as a driver on their policy.
  • Some exceptions to car insurance requirements exist for military members, young drivers, and drivers with continuous motorcycle insurance.

What Happens When You Let Your Car Insurance Lapse?

When you let your car insurance lapse, you’re allowing your coverage to end. Some reason for that include: 

  • You don’t have the money to pay your bill.
  • You sold your only car.
  • Your only vehicle broke down.
  • Your only car was in an accident.
  • You won’t be driving for an extended period.
  • You are moving away fro, home temporarily,
  • You forgot to pay your bill.

Before allowing your coverage to end, it’s important to understand the various consequences that include: fees, suspended registrations, personal liability in accidents, and higher insurance costs following insurance gaps.

Fees and Government Consequences

First, if you continue to drive without coverage, you’ll be breaking the law (unless you live in New Hampshire or Virginia). If you’re caught, you may face fees, vehicle impoundment, license suspension, or even jail time. The consequences vary by your state and situation. 

Drivers caught illegally driving without insurance may be required to file an SR-22 to prove they have coverage, which can increase your insurance cost.

Further, some states have systems to automatically notify the department of motor vehicles when a driver’s insurance lapses. If it’s not reinstated within a certain period, the driver may face consequences. For example, in Idaho, drivers without coverage for two consecutive months are given 30 days to get coverage or their registrations are suspended.

Personal Liability for Accidents

If you’re found to be at fault in an accident while driving without insurance, you could be headed for financial hardship without insurance. In this case, you could end up personally responsible for property damages, medical expenses, and more. These costs can be very high and potentially cause significant long-term financial strain. 

The average cost of vehicle property damage due to a car crash was $4,600 in 2019, while injury costs (including death) ranged from $12,500 to over $1.7 million, depending on the severity, according to the National Safety Council.

Higher Costs for Coverage Gaps

Auto insurance companies often offer a discount for carrying continuous coverage. That means if you’ve been continuously insured, your premium will be lower than drivers who have had coverage gaps. So if you take a break from having coverage, you’ll likely face higher costs when you reinstate coverage.

Preventing an Insurance Lapse

Instead of letting your insurance lapse, consider all your options.

For example, if you want to cancel because you’re in a financial crunch, you risk worsening your financial situation by dropping your coverage. Instead, you can call your agent to ask about ways to save on your policy, you can shop around for the best deal, or you can reduce your coverage. 

If you can’t make your insurance payment, consider borrowing money, selling some personal items, or using a credit card in emergency situations. 

If you have another situation, for example, you’re in between vehicles, won’t be driving for a while, or if your car is out of commission until it’s repaired, call your agent to find out what options are available to you. Think carefully through all the pros and cons of canceling auto insurance. 

What To Do if You Have an Insurance Lapse

​​If your insurance lapses, you have two options:

  • Call the insurance company and request reinstatement
  • Ask to be listed as a driver on a family member’s or friend’s policy

Reinstatement

If you haven't had a previous insurance lapse and haven't recently had multiple claims, you have a good chance of being reinstated. Reinstatement is when your original policy is put back into force. 

Depending on how long the lapse has been, you may be able to get your insurance reinstated without a pause in coverage. You may be charged additional premiums for lapsing, but it will still typically be cheaper than the rates you get if you’re considered high-risk.

Join Someone Else’s Policy

If your policy has lapsed but you don’t want to reinstate it, you can ask a friend or family member to add you to their policy. This might be an ideal option if you don’t have your own vehicle. As long as you're listed as a driver on an insurance policy, you won't be treated as high-risk when getting insurance in your name. 

Many auto insurers will require you to live in the same permanent residence as the main insured person. As long as you live together, you can join the policy as a driver and you will be covered if you drive their vehicle. You may even be able to add your vehicle to their policy for a shared policy.

Is There a Grace Period Before the Lapse Is Official?

Grace periods give you an amount of time between a missed payment and a cancellation that would result in a lapse in coverage. States require insurers to notify policyholders before canceling their policy, and the grace period typically ranges from 10 to 20 days. For example, New York requires automobile insurers to give at least 15 days' notice of cancellation when the reason is nonpayment.

Check your state laws and with your insurer so you know how much time after a missed payment to avoid cancellation. 

Exceptions: When You Can Let Insurance Lapse

There are only a few reasons to go without insurance, and most of the exceptions come with stipulations. These include:

  • Military employees: Service members can obtain insurance without prior coverage due to deployment or training on base. 
  • Newly licensed youth drivers: Newly licensed youth drivers may have a difficult time finding coverage with a preferred carrier on their own, so it's best to start by being listed on a parent's insurance policy.
  • Drivers maintaining continuous motorcycle insurance: Motorcycle riders may be able to drop vehicle coverage by getting pre-approval from their auto insurance carrier. Exceptions for motorcycle riders came about due to drivers downsizing to motorcycles. However, don't expect this strategy to work with every carrier.
  • Retired drivers: If you don’t plan to ever drive again, it will make sense to cancel your coverage as you won’t have to worry about price hikes when you get coverage again. 

The Bottom Line

When money is tight, it might seem like a good idea to cancel your car insurance to save, but it’s rarely a wise financial move. Driving without insurance is against the law in most states, and it can also end up being costly. Weigh the consequences and alternatives carefully to make the best decision for today and the future. 

Frequently Asked Questions (FAQs)

How do I switch car insurance without a lapse?

To ensure you don’t have a lapse in car insurance coverage, be sure you sign up for a new auto insurance policy before canceling your existing one. You’ll be able to ask your new insurer when your policy goes into effect, and it should be printed on the documents you receive, so make sure that it aligns with the date you cancel your previous coverage. 

When does a life insurance policy lapse?

Similar to an auto insurance policy, a life insurance policy will lapse if you don’t make your premium payment before the grace period runs out. That said, your insurer must notify you if your policy is in danger of lapsing. The grace period can vary by state and insurer. If your policy lapses, you may be able to contact your insurer to get it reinstated. 

What happens if I let my health insurance lapse?

If you let your health insurance plan lapse and don’t catch up within the given grace period, your provider can end your coverage. If it does, you may appeal the decision if you feel it wasn’t justified. Otherwise, you will have to wait until open enrollment to enroll in a new plan, unless you qualify for a special enrollment period.

Article Sources