Car insurance isn’t something most people think about every day. Personally, I only think about it when I get my six-month renewal notice in the mail.
Life can get hectic, though. As a dad of two kids and a business owner, it’s easy for a piece of mail to get lost on my kitchen counter. If I didn’t have automatic payments set up on my auto insurance bill, I might accidentally forget to pay it upon renewal.
When you forget to pay for your renewal, you could face a lapse in car insurance coverage which can be way more financially devastating than you’d think.
Here’s what happens when your car insurance policy lapses, what impacts it can have, and what you should do if you find yourself in this situation.
What is a car insurance policy lapse?
Virtually every state, except New Hampshire, has laws requiring drivers to carry some level of auto insurance. A car insurance policy lapse occurs when you go for some time without car insurance, whether on purpose or not. Since almost every state requires you to have auto insurance, having a lapse in your car insurance is serious business!
In addition to going uninsured, which can be financially devastating, it can have other consequences as well.
Common ways your auto policy could lapse
Your policy could lapse for many different reasons. Here are the three most common:
You forgot to pay your bill
If you forget to pay your bill and don’t make a payment, your auto insurer has the option to cancel your policy. Thankfully, states have laws that require insurers to give you notice before canceling your policy.
The time period that insurers have to notify you of a lapse in coverage varies by state, but you can usually count on a week. This should give you time to correct the error and get your policy reinstated.
Your insurer doesn’t renew your policy
If your insurer decides not to renew your policy, you will need to buy insurance before your current policy runs out. If you don’t, you’ll have an auto insurance lapse when your current policy expires. The downside is your auto insurer is probably not renewing your policy for a reason. Chances are, finding a new policy is going to be costly.
If your policy is not renewed, your insurer will usually notify you by mail, or by email if you’ve signed up for electronic delivery. If you’re ignoring your mailbox or email inbox, you might miss this notice.
Your insurer cancels your policy
Finally, your insurer may decide to cancel your policy. This could happen for several reasons, including having too many accidents. Again, insurers must notify you in advance if they’re going to cancel your policy.
The only way that this situation turns into a policy lapse is if you don’t secure new coverage before your policy gets officially canceled. Securing new coverage may be expensive, but not having insurance could be even more costly.
What happens when your car insurance policy lapses
When your auto policy lapses, that means you no longer have auto insurance. This in itself is bad. If you get in a car accident without insurance, you don’t have coverage. You have to pay for any expenses out of your pocket, which most people simply can’t afford to do.
Think about the costs of a usual accident. If you have full coverage, you’d only have to pay your deductible before your insurer would cover the rest of the expenses. Without insurance, you have to pay to repair the other person’s car, your car, and pay for any medical bills or injuries that result from the accident.
Most states require car insurance
Without insurance, some states may automatically suspend your driver’s license or even your car registration. On top of that, you may have to pay fines or expensive fees to get these reinstated. While getting these matters resolved, you won’t be able to drive, which could mean that lots of expensive Uber rides are in your future.
You may need an SR-22 form
If your state requires an SR-22, a special form to prove you have car insurance, due to your lapse in coverage, getting your insurance company to issue that may have additional costs. They may view SR-22 drivers as riskier which could, in turn, up your premiums significantly.
You can get fined for driving without insurance
Driving without insurance can be costly if you get pulled over by a police officer. You can get fined for driving without insurance, adding another cost to the list. These fines vary by state and, in some cases, come with potential jail time.
Your auto insurance rates could go up
A lapse in auto insurance coverage can financially affect your insurance rates. Many car insurance companies offer a discount for being continuously insured. That’s why, when you go to get a quote with a new company, they also ask how long you’ve been with your previous car insurance company and when your current policy expires. If you’ve had a lapse in coverage, you may not secure this discount.
Not only could you be without a discount, but you could also find that your premiums rise. Not being continuously insured is a risk factor car insurers consider. The longer your lapse is, the higher your rates could potentially climb.
Your car could get repossessed
Your auto loan lender may have issues with a car insurance lapse, as well. Auto lenders want to make sure the car, which secures the loan, is always insured. After all, if you default on your loan, your car will be taken as collateral. If you don’t have insurance to help you maintain your vehicle, your car could be worth less to your lender.
You are likely breaking your auto loan agreement if you have a lapse in coverage. The lender may go as far as repossessing your car if this happens.
Actions to consider taking if your policy has lapsed
Most of the time, a lapse in your car insurance is a simple oversight. If this has happened to you, take action as soon as you notice.
Call your insurance company
The first thing you should do is call your car insurance company. If it hasn’t been long since your policy quit being active, your provider may be willing to reinstate your policy.
A policy reinstatement can prevent a lapse from occurring as you’ll remain continuously covered. Of course, your insurance company will probably charge an extra fee for the reinstatement and the late payment.
Unfortunately, you won’t always be able to get your old insurer to reinstate your policy. Too much time may have passed or your insurer may have decided not to renew your policy. In these cases, there isn’t too much you can do to avoid the lapse in coverage. Even so, you should still take action immediately by seeking out a new policy.
Find a new auto insurer
If your previous insurer refuses to reinstate your policy, you should work to find a new auto insurance policy as fast as possible. Even if you have to get a bare-bones policy with minimum insurance limits, it gets you covered again. That way, you can handle any other impacts that may pop up from not having insurance by explaining you’ve already secured a new policy.
This can restart your time of being continuously insured, helping you secure those discounts faster down the road versus waiting for a while before getting a new policy. Remember, you can always find a better policy later. This step is all about securing coverage.
Compare your options through an insurance marketplace like Gabi. They allow you to get multiple car insurance quotes with a single application, potentially saving you both time and money.
If you’re in a financial bind, try to pay the bare minimum
Other times, a lapse in car insurance may be due to financial strain. In this case, do your best to find the money to scrape together to buy at least the minimum amount of car insurance required by your state. Doing this instead of letting your policy lapse can help your finances avoid the other strains associated with a lapse in car insurance, like having your vehicle repossessed or your driver’s license suspended.
Car insurance lapses are usually due to forgetfulness, or simply a chaotic life. If you find you forgot to pay your auto insurance premiums, call your old insurer and ask if your policy can be reinstated. If it can’t, get new auto insurance as soon as possible to minimize any adverse effects.
People under financial strain should do everything they can to avoid an auto insurance policy lapse. If you are struggling to pay your auto insurance, find cheaper insurance, lower your coverage to the minimums, or find some other way to stay insured. The alternative is often much more costly, especially if your car gets repossessed or your license and registration get suspended.