What Happens If Car Insurance Lapses?

Things happen. Sometimes we accidentally forget to pay the car insurance bill. We might have a tough month financially and just not be able to cover the bill. Whatever the reason is, the car insurance bill didn’t get paid and your auto insurance has lapsed. The question you’ve got now is what do I do if my car insurance lapses? What could happen? We’ll explain what you need to do and what the potential consequences could be.

A lapse in auto insurance means you are not currently covered by your insurance plan. You are not legally allowed to drive on roads. You don’t have your state’s minimum-required liability coverage.

Your auto insurance lapses from the moment your last insurance plan expired to the moment you get a new car insurance plan – or the moment your coverage is reinstated.

What To Do If Your Auto Insurance Policy Lapses

An auto insurance lapse can leave you highly exposed to risk and penalties and should be avoided; however, if it does happen, you need to know how to remedy the problem.

You will have to deal with the fines and penalties as they come, but your main priority is to get coverage. How you handle the situation can affect your ability to get affordable car insurance in the future.

First of all, if you realize that your car insurance has lapsed or you haven’t made your payment, do not drive the car. Use a ride-share service, ask a friend for a ride, whatever you have to do, but try not to drive the vehicle. The thing is that when your insurance lapses, that means that you have no insurance on your car. No payment, no insurance. We’ll explain the implications of that a little later.

The next thing you have to do is call your insurance agent or your car insurance company. If you’re not too late, you might be able to reinstate your policy without too much trouble, especially if you have a good driving record and you’ve been generally good about paying for your insurance. If it’s just a one-time, “oops” kind of situation, you might be able to pay the bill and take care of it easily.

However, if it’s been a while since your policy has lapsed, you might have a bit of an issue on your hands. You’ll have to discuss your options with your agent, as your insurance company probably has a protocol for how they handle nonpayment.

If you can’t get insurance from your current company, you might have to start shopping for insurance elsewhere. And the drawback is that this coverage could be more expensive – cancellation due to nonpayment does not endear you to a new insurance company.

What Is an Auto Insurance Lapse?

A lapse in car insurance coverage means you own a vehicle that no longer has the state-required minimum coverage limits.

The auto insurance industry considers the lapse period to be from the time your coverage stops until:

  • You get new car insurance coverage (or your coverage is reinstated).
  • You surrender your vehicle plates.
  • Your vehicle registration expires.
  • Offer proof that your vehicle no longer requires car insurance (e.g., paperwork showing that it was repossessed).
  • You've purchased the minimum coverage limits in your new state (if you've moved).

Common Reasons for Coverage Lapses

Drivers who suffer a lapse often do so because of a cancellation of their car insurance policy due to:

  • Nonpayment of premium.
  • Late payment.
  • Failure to renew.
  • Excessive traffic violations or serious accidents.

If your insurance company drops you for some reason, you need to get a new policy in place before the old one expires. Also, if you choose to switch providers, you must make arrangements carefully to avoid a lapse between when your current auto insurance policy ends and your new one begins.

Penalties of a Lapse in Auto Insurance

So you’ve let your car insurance lapse. Now what? The costs of an auto insurance lapse are severe. Obviously, it’s illegal to drive without insurance on all public roads in the United States. If you get pulled over while driving without insurance, then you could face penalties like:

  • Fines
  • Community service
  • Suspension of your driver’s license
  • Increased premiums

These aren’t the only penalties you’ll face, however. When your car insurance lapses, your insurance company will likely notify your state’s DMV and explain that there’s a registered vehicle on the roads with no insurance. In this situation, the DMV might assess severe penalties for letting your car insurance lapse. The penalties vary between states but can include all of the following:

  • Driver’s license suspension
  • Vehicle registration suspension
  • Fines and reinstatement fees
  • SR-22 financial responsibility filing requirement

Some of the biggest penalties, however, occur when you cause an accident while driving with lapsed insurance coverage. If you cause an accident, then you’re liable for all damages and injuries that occur. That means you’re personally responsible for paying medical bills, vehicle damages, and any other losses that occur as a result of the collision. Typically, insurance would cover these expenses – but you’re not insured.

What could happen if your car insurance lapses?

Like we said if your car insurance lapses you do not have coverage. The coverage stops when you miss your payment.

So here’s the thing:

Most states require you to carry auto insurance to legally drive your car on the roads – that have a state minimum level of car insurance. If you drive a car without insurance and you get pulled over, you would get in big trouble for having no auto insurance. It’s a big deal. Driving without insurance is illegal.

But that’s not the only thing you have to worry about:

If your coverage lapses and you’re at-fault in an accident, there would be no insurance there to protect you. You would be responsible for paying for…

  • The other driver’s medical bills.
  • The repairs to the other driver’s car.
  • The repairs to your car.
  • Legal fees if the other driver sues.
  • Whatever judgment the court determines you have to pay.

All of these expenses would be on your head. You’d have to cover them out of your own pocket, and those prices…well, they’re far more than your car insurance premium, we can tell you that. Remember, your insurance functions as a financial safety net so you don’t face a huge loss if you get into an accident.

What if my car insurance lapses and I have a car payment?

If you took out a loan for your car, that means that you’ve got a lienholder that you’re paying back. That lienholder or leasing company will probably require you to have insurance, both liability coverage and collision/comprehensive coverage. That’s because they want to protect your investment in the vehicle. So, if it comes to the attention of your lienholder that your car insurance has lapsed, they could take matters into their own hands with force-placed insurance.

Basically, this means that they’ll get insurance for your car and then make you pay for it. Don’t think that you can pull over the eyes of your lienholder and not carry the right insurance.

The Costs of an Insurance Lapse

Letting your car insurance lapse can create multiple problems. When your insurance company notifies the DMV that they no longer cover your car, you are subject to a number of penalties that vary by state.

Common penalties for car insurance lapses include:

  • Driver’s license suspension.
  • Vehicle registration suspension.
  • Fines and reinstatement fees.
  • SR-22 financial responsibility filing requirement.

Also, remember that there are severe consequences for driving uninsured. If you are caught driving without insurance you face:

  • Fines.
  • Community service.
  • Driver's license suspension.
  • Increases of your premium.

Lastly, if you drive uninsured and cause an accident, you are financially responsible for damages and injuries that occur. Without auto insurance, these costs can add up quickly and be devastating to your finances.

Future Insurance Implications

A gap in coverage can make it difficult to get a new policy, too.

The insurance provider may raise your rates or label you a high-risk driver and refuse you coverage. Once labeled a high-risk driver, it can be difficult to find affordable car insurance rates.

Common Reasons for Lapsed Auto Insurance

  • I forgot to pay my bill
  • I don’t have the money to pay my bill
  • I sold my only car
  • My only car broke down
  • My only car was in an accident

Avoid a Lapse if Possible

Several of the reasons for lapse listed above may seem like legitimate reasons for canceling your auto insurance, but the consequences are severe. It can be especially dangerous if the reason for lapse is one of the first two. Forgetting to pay your bill or not having the money implies you may still be driving your vehicle. If that is the case, extremely serious problems can come up if an auto accident occurs. If you no longer have a vehicle or choose not to drive it for a period of time you will still incur penalties.

  • You can be held personally liable in an accident
  • Hefty fines if you’re caught driving without insurance
  • You’re considered high-risk the next time you go to purchase insurance, which can nearly double your payments

Look for ways to avoid a lapse if possible. Car insurance should be high on your priority list. Borrow money from a family member, sell some items or use a credit card to make your payment within your grace period. Reduce coverage, talk to your agent to find out ways to save on your policy, or shop for lower rates if money is the problem. If you are without a car for a period of time, see if you can be listed as a driver on a family member’s policy. If you’re transitioning between vehicles or your car is out of commission due to repairs, carry insurance on your old vehicle just until you make your new purchase or repair your vehicle.

It could save you hundreds of dollars.

What to Do if You Have a Lapse

Two options can help solve your problem quickly:

  • Call the company or agent you lapsed with and request for reinstatement
  • Ask to be listed as a driver on a family member or even a friend’s policy

If you have had a good standing with your insurance provider, for example, have never lapsed before and have not recently had multiple claims, you have a good chance of being reinstated. It is possible to incur a surcharge for lapsing; however, it will still be cheaper than going with a high-risk carrier. Being listed as a driver on a family member or friend’s policy is a great option for someone without a vehicle. As long as you are listed as a driver on an insurance policy, you will not be treated as high-risk when getting insurance in your own name.

How to Fix a Lapsed Insurance Plan

So you’ve let your insurance lapse and you want to avoid penalties. What should you do?

Option 1) Contact Your Current Insurance Company

Your first and best option is to contact your insurance company. You might have missed a payment or forgotten to renew your plan. In that case, an agent at your insurance company may be able to reinstate your policy without any penalty. The shorter your lapse has been, the more likely you’ll be able to reinstate your policy without penalty. If it’s been 5 to 7 days, for example, then you might be okay. If it’s been several weeks, then you’re less likely to receive a penalty-free reinstatement.

Obviously, avoid driving until you get a new proof of insurance card from your insurance company.

Option 2) Shop Around for New Insurance

Alternatively, your insurance company might have avoided renewing your car insurance because of excessive traffic violations or at-fault accidents. In this case, your insurance company might double or triple the cost of your insurance.

If this is the reason your insurance lapsed, then now is the time to shop for a new insurance policy. Car insurance companies vary widely in terms of how they calculate risk. You might pay prohibitively high premiums at one insurance company while paying more affordable premiums at another insurance company.

If your car insurance coverage has lapsed, then now may be the best time to compare auto insurance policies.

Handling an Expired Policy

When Your Policy Expires

If you find that your car insurance policy has expired, contact your carrier right away. The agent may be able to reinstate the policy without any penalty if it has been only a few days. If the lapse has been longer, you may be unable to reinstate your policy.

Avoid driving until you get an updated insurance card. If the provider offers an online payment system, they may have a way for you to print out your new cards.

When Your Policy Was Canceled

If your policy was canceled due to nonpayment of your premium or for traffic offenses, such as excessive tickets, it's unlikely your car insurance company will be willing to reinstate your coverage.

In such cases, it might be necessary to shop for a new insurance provider. Keep in mind that if your policy was canceled, other car insurance companies in the market may look upon you less favorably and, in turn, charge you higher rates.

Any time you are shopping for a new policy, make sure to get at least 3 quotes. This is easy to do, as many websites offer free online car insurance quotes.

Shopping for a New Policy

A lapse in insurance coverage reflects badly on you. Insurance companies base their premiums on how they rate your perceived responsibility and risk. Not having insurance suggests you are less than a responsible driver and could subject you to higher rates, classification as a “high-risk driver," or even denial of coverage.

If you have problems getting insurance, you can try your state's automobile insurance plan. This is a state program that allows drivers who've been labeled high-risk and who've been denied insurance to be able to get the minimum required coverage.

If you must get high-risk car insurance or insurance through your state's automobile insurance plan, you can expect to pay more for coverage for a number of years. If you keep up your car insurance and avoid any further lapses, however, you will eventually qualify for better premiums.

Avoiding Future Lapses

You can avoid having another auto insurance lapse by:

  • Making sure your registration and license information are current.
  • Surrendering the plates for a car that you no longer own.
  • Responding to all correspondence from the insurance company in a timely manner.

After Grace Period is Over, Immediately Renew the Lapsed Car Insurance Policy

In case of an insurance lapse, without any further delay, one should immediately get in touch with the insurance company and check on all the available options for car insurance renewal. Some companies might allow you to renew the policy, in case the insurance lapse is only of a few days, or else insurer will advise you to apply again for a fresh policy.

While applying for a fresh policy after an insurance lapse, one should scan and shortlist insurance companies based on the most competent premium being offered. Simultaneously, one should arrange all the previous policy documents, details of any past claims and basic car documents such as registration certificate, pollution certificate, etc. and keep them handy.

The insurance company must be contacted to arrange a survey or inspection of your car as soon as possible. This survey is required to determine any pre-existing damages, which usually insurer may not cover or charge an extra premium to include this depending on the extent of damage.

Based on all these factors, insurer can review and decide whether you are still entitled for a ‘No-claim Bonus (NCB)’ or not on your fresh policy. Once the survey is done, the premium offered by the company may be valid only for a limited time (typically 24 hours) and one should make a final decision within this time period.

How to Avoid Future Lapses?

Renewing your car insurance is quite simple these days and can be done easily online directly on insurance company’s website or on policy aggregators like Policybazaar.

Typically insurance companies chase and send reminders for policy renewal to customers through automated calls, emails and SMS alerts. Online car insurance renewal is also advisable as you can get a digitally signed policy immediately.

Ideally, one should set reminders on mobile phones or calendars rather than depending on the insurance companies to send renewal alerts. Expert service portals also come handy in such scenarios.

Here are 5 things you must always keep in mind when your car insurance policy expires:

Get in touch with your agent

Even if you have managed to miss out on the due date for renewal, you can contact your insurance agent and take things forward. Your agent will be in a better position to help you out in such cases. Your agent could reinstate the insurance policy and save you from paying any kind of penalty. 

Avoid driving your car

Driving your car means putting it to further risk. It may not be your fault but a minor damage to your car will not be covered by the insurance policy. If you just cannot do with your car, call and check with your insurance provider whether or not they have an option of renewing your policy online. In case of an online renewal system, your car insurance can get renewed in a couple of hours.

Buy a new policy

If your insurance company has cancelled the policy on the grounds of non-payment of premium, you will have to renew your expired car insurance policy. There are a lot of insurance companies offering car insurance at affordable rates. However, you must go for a policy that is reliable.

Click and buy

There are a lot of people who are hesitant buying car insurance online. It may surprise you to know that it is very easy and completely safe. It saves a lot of time and also premium payable is less as compared to an agent. 

Be careful in future

Make it a point to pay your premium on time to avoid policy lapse.

Auto insurance can lapse for many different reasons – including missed payments, excessive collisions or traffic violations, and failure to renew. When your insurance lapses, you can contact your insurance company to renew your plan. Or, you can shop around for new insurance. Above all, remember to stay off the road until you have proof of insurance. 

References:

[1] What To Do If Your Auto Insurance Policy Lapses https://www.dmv.org/insurance/what-to-do-if-your-auto-insurance-policy-lapses.php

[2] What happens if my car insurance lapses? https://insurancehub.com/car-insurance-lapses/

[3] Avoid a Car Insurance Lapse https://www.thebalance.com/avoid-a-car-insurance-lapse-527455

[4] What If My Car Insurance Lapses? https://www.insurancepanda.com/3681/what-if-my-car-insurance-lapses/

[5] Never Miss To Renew Your Car Insurance https://www.policybazaar.com/motor-insurance/general-info/articles/what-to-do-if-car-insurance-lapses/

[6] 5 Things To Do When Your Car Insurance Expires https://www.reliancegeneral.co.in/Insurance/Insurance-Information/Car-Insurance/5-Things-To-Do-When-Your-Car-Insurance-Expires.aspx