Auto Insurance Policy Lapse Explained: What Happens When You Lapse

After I was involved in a large auto accident a few years ago, I realized that I was about to become innately familiar with the claims process. Sure enough, within a few months I started to receive paperwork regarding my accident, and it was really interesting to see how my insurance company handled things. I was able to save a tremendous amount of money by talking with agents about covered and non-covered claims, and it really opened up my eyes about the entire insurance coverage process. Check out this blog for great tips on saving money, living better, and receiving the coverage you need.

Auto Insurance Policy Lapse Explained: What Happens When You Lapse

9 September 2022
 Categories: Insurance, Blog

A car insurance lapse is when you don't have car insurance coverage. This will happen when the insurer drops you for whatever reason or you fail to pay your premiums. Where non-payment of premiums is concerned, your insurer will typically give you a grace period before policy cancellation. This grace period is usually 10-20 days long, and making payment for renewal within this window will help you avoid a lapse.

Why Avoid Policy Lapse

What happens if your auto insurance policy lapses? Here is a brief look at the likely consequences.

1. Liability for Accident Costs

If your auto insurance policy lapses, then your insurer will not cover you for damages incurred or caused while you operate your vehicle. In this case, you will be personally liable for any such damages. If you get involved in a major accident during this time, you may be looking at huge costs that can leave a big dent in your finances. 

2. Penalties Imposed by State

Penalties for driving without a valid and up-to-date automobile policy vary from one state to the next. You face license suspension, seizure of your license plates, hefty fines, and even jail time. These penalties are all great reasons to avoid driving without proper car insurance. 

3. Higher Premiums

You may be required to pay a flat late fee if you miss a payment for your auto insurance policy by even a day. If it takes you too long to restart the policy, then the cost can go beyond this penalty. This is because your insurer may increase your premiums depending on how long it takes for you to restart the policy. 

4. Policy Non-Renewal

A car insurance provider may choose to deny you coverage for any one or a combination of reasons, as long as these reasons aren't discriminatory. Depending on the specifics of your lapse, your insurer may see you as too high-risk and, based on that, refuse to renew or restart your automobile policy. When this happens, you will be forced to go back to shopping for a new insurer. 

5. Impact on Driving Record

In many states, auto insurance companies must notify the department of Motor Vehicles (DMV) about clients who lapse in their insurance coverage. The DMV may note it on your driving record, and it may stay on your record for a few years. 

As highlighted, the consequences of a lapse on your auto insurance policy can be quite severe. To prevent lapses, have reminders and ensure you keep up with your policy renewal payments. Click here for info about auto insurance.