If your auto insurance lapses, you could face higher premiums, fines and difficulty reinstating your coverage. A car insurance lapse makes insurers see you as a potential risk. This article will cover:
- What constitutes a lapse in car insurance coverage?
- What happens in the event of an auto insurance lapse?
- Do auto insurers have a grace period?
- What if you're in an accident during a coverage lapse?
- What should you do if your auto insurance lapses?
What is a lapse in auto insurance?
Any situation where your auto insurance ceases to be active is considered a lapse in coverage. This can include:
- The amount of time you're late with a premium payment.
- Canceling your auto insurance policy without having a new one in place.
- When your auto insurer cancels your policy for any reason.
What happens after your car insurance lapses?
The consequences of a lapse in your auto insurance usually include an increase in your car insurance rates as well as state-mandated penalties. Those penalties may include fines and suspensions from the state you live in. Insurance companies may even refuse to sell you a policy if you've had a coverage lapse.
How car insurance companies handle a coverage lapse
You'll probably see an increase in your premium. Based on our research, you could see your auto insurance rates go up as much as 45% after a lapse. Take Progressive, for example. According to our research, a $33-a-month policy can increase to $38 within a month of a lapse. It can then increase again to $48 after a month without payment has passed. Car insurance companies consider a lapse in payment as a high-risk indicator.
Since lapses in auto insurance are noted in your auto insurance history, there's also a good chance you would see higher rates than usual when you change to a new provider. This increase may stay on your auto insurance record for years.
Legal repercussions of a car insurance lapse
States may have penalties for lapses in car insurance as well. When your coverage lapses, your insurer will notify your state's DMV. This could result in:
- Registration and plate confiscation: You may be required to surrender your registration and license plates, effectively making your car illegal to drive.
- Fines: You could see fines not for the lapse of coverage, but also for reinstatement of your license or registration.
- Repossession: If your car is leased or financed, your lender can legally repossess the car.
- Filing an SR-22: In the event of a lapse in auto insurance, some states require you to file an SR-22. An SR-22 is a document that acts as proof that you maintain the state's required liability insurance limits. An SR-22 often results in much higher rates as well.
Is there a grace period to reinstate my car insurance?
Many auto insurers offer a grace period ranging from one to 30 days to bring your premium payments current after your due date. There is no standardized grace period between auto insurers, so you'll want to know how yours handles a lapse in payment.
Even if your auto insurer offers a grace period for late payment, it probably won't be free of consequence. On top of fines, your rates will probably increase.
Also, it needs to be stressed that the grace period is only in regards to late payments of your premium. No state has a grace period for driving without auto insurance. In all states except New Hampshire and Virginia, it is illegal to drive without auto insurance for even a day.
If you're not driving for an extended period, many auto insurance companies allow you to pause or suspend your policy in order to avoid a coverage lapse. This can be useful if you're in the military and deployed overseas, or otherwise going to be abroad for some time.
If your car is registered but stored in a garage, it still needs to be covered by auto insurance. Ask your insurer if they have alternate coverage for it while it's in storage and not driven.
What if I'm in an accident during an auto coverage lapse?
If you have an accident while in a lapse of payment, your insurer may allow you to reinstate your coverage, but they won't cover the accident. If you lie and say that the accident occurred after you reinstate your insurance, you're probably looking at auto insurance fraud. Reinstating insurance and then filing a claim shortly thereafter is a red flag to insurers, and it will probably be investigated.
If you're in an accident with a lapse in coverage, who's at fault can have different effects on the outcome:
- If you're at fault: If you caused the accident during a coverage lapse, it's practically guaranteed that you'll pay out of pocket for any damages or injuries resulting from it. This could result in a bill of thousands of dollars more than what your auto insurance premium could be.
- If the other driver is at fault: The result depends on where you live. If you live in a "no pay, no play" state, you'll get limited compensation for injuries or property damage for a crash you didn't cause. Ten states currently have no pay, no play laws. Other states do not have limits on compensation for uninsured drivers.
- If who's responsible is unclear: Auto insurers use adjusters in order to determine the fault and severity of a collision. If you are in an accident during a lapse, this means that the other driver will have an adjuster and you probably won't. If your auto insurer isn't providing coverage during a lapse, they won't be sending out an adjuster. This puts you at a disadvantage. The only recourse at this point is usually getting legal advice, which can easily cost more than an auto insurance policy for a year.
What to do if your auto insurance lapses
If your car insurance policy lapses, call your auto insurer immediately. Every day you let pass without doing so can increase your rates in the future, among the other penalties that can be added.
Depending on the reason for the lapse, your auto insurance company may not penalize you. If you go too long without taking care of it, however, your auto insurer could cancel your policy. This would leave you trying to find a new provider.
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