What Happens If There Is A Lapse In Car Insurance?

Friday, July 28, 2017

A lapse in car insurance is a span of time in which an individual does not have car insurance coverage. There are numerous ways lapses can happen. Neglecting to pay premiums and failing to renew a policy are two of the most common reasons.


While states have individual rules and regulations, for the most part, everyone must carry some form of car insurance if they own a vehicle. Car insurance, like most other insurances, is something that only activates when something bad takes place, like an accident or if damage occurs to the car. If that’s the case, then, we could probably get through a few lapses, right? Well, many have thought that way only to encounter Murphy’s Law (“Anything that can go wrong will go wrong”) and be involved in an accident. And, don’t forget, if you are pulled over by a police officer, they always ask for proof of insurance.


Reasons Lapses Occur


Sometimes, the insurance carrier cancels a policyholder’s coverage. This can happen for the following reasons:


  • If you knowingly and intentionally lie to your insurance company. According to Autoguide.com, in 2014, more than 30 percent of car insurance applicants lied or omitted information on their forms. And, that’s a figure from a voluntary survey. Misstatements are mostly made in order to receive lower premiums. Rewarding clients for deceit, however, is not considered good business practice and can also lead to losses in premiums.


  • Purposefully underestimating the total number of miles you drive.
  • Not fully disclosing how many people reside in your household and/or not fully disclosing the truth about them (e.g. a male teenager).
  • Misrepresenting the location of your parking garage. A city-dwelling applicant can get a better rate for parking in a garage. But, if their garage is in a high crime area, the discount is less.
  • Not revealing that a condition that resulted in a discount no longer exists.
  • Misrepresenting how many tickets you’ve received.
  • Being deceitful about how you use your car. (e.g. you transport children on a daily basis, but don’t disclose doing so).


  • If your license was revoked or suspended, or the license of another person in your household was revoked or suspended and you don’t inform your carrier, it can cancel your policy. (the Department of Motor Vehicles (DMV) checks records regularly. They will find out).


  • If you are diagnosed with an illness that makes you an unsafe driver, your policy can be canceled. Some states can actually cancel car insurance policies and deem people unable to drive because of certain conditions. For example, in California, doctors must report those diagnosed with Alzheimer’s Disease to the Health Department, who then reports to the DMV.


No Good Reason


There is never a good reason to allow your car insurance to lapse. The consequences can be brutal, particularly if you neglected to pay your premium and/or let the policy lapse. Such indicates that you are purposefully driving your vehicle without insurance (i.e. breaking the law). Regardless of how the secret is discovered (ticket, accident, etc.), your insurance carrier could place you in a high-risk category and double your premiums


If you’re involved in an accident during a lapse and are deemed responsible, you’ll still be held liable for all damages and injuries. Those involved could sue you, garner your wages, and liquidate your property (that’s on top of the aforementioned penalties and fines). An accident with marginal damage and minimal injuries could easily devastate you.


The inability to pay for the damage caused could result in a suspended license. Then, when it’s ready to be reinstated, proof that the driver is able to pay it will be necessary.


In many states, involvement in an accident in which the uninsured is not at fault results in the inability to seek compensation for lost benefits or wages. This will also deny the uninsured the right to sue the responsible driver.


Just being involved in an accident when your insurance lapses can also damage your insurance credit score. And, the more severe the accident, the more severe the effects on this insurance credit score.


To sum it all up, it’s not worth it.


Financed Cars


Some people finance their cars through a dealership. Buyers agree to pay for it over a certain period, after which they own it. The loan documents usually require buyers to carry full coverage car insurance.


Always check the agreement. It probably states that a car insurance lapse results in repossession force-placed insurance. Forced-placed insurance takes place when the lender purchases the car insurance and sends the owner a bill. If the bill is not paid, then they most likely will repossess the car.


Forced-placed car insurance is usually much more expensive (up to five times more), provides diminished coverage, and doesn’t even offer liability or property damage protection.


Leased Cars


With a lease, the individual returns the car back to the dealer at the end of the lease period. The agreement usually requires buyers to maintain full coverage.


If you leased your car, once again, check your agreement. It probably states that letting the car insurance lapse will allow you a short time in which to reinstate the policy or purchase a new one. If you fail to do so, the leasing company will most likely repossess the car.


How to Prevent a Car Insurance Lapse


There is never a good reason to let a car insurance policy lapse. But, maybe there are genuine and/or understandable explanations for why a lapse might occur. Such explanations include:


  • Oversight regarding the premium due date
  • Loss of job resulting in an inability to pay
  • Illness and/or disability resulting in an inability to pay
  • The car broke down with an inability to repair it
  • Selling your car


These days, many people encounter hardships. But, the consequences of a lapse are too great. If you find that making your payments is becoming impossible, call your insurance company or agent immediately and discuss the situation. They might be able to reschedule your payments or allow you to make a late payment. Perhaps you can decrease your coverage and lessen your premiums. You could even shop around for a lower rate. Regardless of the outcome, it’s always best to try to find a solution.


What to Do if You Have a Lapse


If you encounter a lapse, once again, contact your insurance company or agent right away and request a reinstatement. If you are in good standing with your provider (i.e. never before lapsed and have no recent claims), there’s a good chance they will reinstate you. Then, too, perhaps you can decrease your coverage and lessen your premiums, or shop around for a lower rate. Again, it’s always best to try to find a solution.


If You Don’t Own a Vehicle But Still Drive a Car


If you’ve let a policy lapse because you no longer own a vehicle, but still have access to one and wish to drive, perhaps you could ask a family member or friend to list you on their policy. Such a manner is less expensive than purchasing a high-risk policy and it will also prevent companies from treating you as high-risk when you are ready to repurchase car insurance for yourself. Or, you can purchase non-owners’ auto insurance. This coverage is designed for those people who do not own a car, but still have access to one through a friend or a family member for usage.


No matter what decision you make, remember to always do whatever you can to never let your car insurance lapse. As well, remember to never drive without insurance coverage. The potential risks are simply too great.