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The Dangers Of A Car Insurance Lapse And How To Prevent It

If you have a car insurance lapse you will automatically be labeled a potential high risk by most auto insurance companies. Auto insurers consider lapses as potential dangers and treat them similarly to getting in a car accident – consequently, client rates will be higher in the future. How much will your rates increase and what steps to take to minimize the damage on your lapse? We break down the essential information below.

What Is A Lapse In Car Insurance?

Car insurance “lapse” is any time your car is left without car insurance – it only applies for registered cars; if the car is sitting in your lot unregistered you have nothing to worry about. A lapse can occur for many reasons. The most common reasons for a lapse are the following:

  • Policy running out. If it’s time to renew your policy and you fail to renew on time – your policy is lapsing. Renew it 30 days in and it stops lapsing.
  • Missed payments. If you missed a payment on your auto insurance it might be canceled and this creates a lapse.
  • Losing the ability to drive. If your driver’s license was taken away or you are incapable of driving for any other reason but the vehicle remains under your ownership. 
  • Military deployment abroad. Deployment abroad means you no longer have to use your car and you also have a lapse. Note: There are exceptions for military personnel.

Is Car Insurance Lapse Illegal?

A lapse is not illegal. Regulation extends on the state level – most states, however, do require auto liability insurance and this is why lapses are undesirable. State laws require that you have auto insurance liability – not for yourself, but to protect fellow citizens. If you damage someone’s automobile, cause damage to property damage or endanger someone’s life – you’re at fault and you will need liability insurance to cover the other individual’s needs. If you are without insurance you are essentially violating the law – there are stiff fines for people who drive uninsured and cause traffic accidents.

What Happens If You Have A Car Insurance Lapse?

Unless you have a very legitimate reason for canceling your car insurance such as being an inexperienced youth driver or deploying with the military abroad – lapses can be very dangerous for your credit score and financial well-being. The most dangerous form of lapse is due to financial bankruptcy – if you couldn’t renew your insurance on time or if you failed to make your monthly payments, you are still likely driving your car to work. In that case, you may experience serious financial difficulties if you get in a car accident, even if you are not at fault.

Note: There are even penalties for people who no longer drive their cars, but remain the owner of the car.

This is what may happen if you have a car insurance lapse:

  • You risk financial ruin as a consequence of an accident without coverage (if you’re held liable you will also pay fines to the police department out of pocket).
  • Fines if traffic police pull you over without auto insurance.
  • Increase premiums when you purchase auto insurance in the future – your payments will be double that of normal citizens.

Pro Tip: Treat a car lapse as a medical emergency. Car insurance should be your main priority if you rely on your car to go to work – you will be overpaying 2x the insurance premiums on your auto for the rest of your life if you don’t get out of your lapse. Borrow money from family, sell your electronics or use your credit card to make an advance payment. Consult with your auto insurance agent to discuss potential reductions in rates and find out if there is a way to save on your policy – maybe shop between different auto insurance providers to find lower rates. Optionally, you should consider getting listed as a driver on another policy of a family member who holds auto insurance.

How Much Will You Overpay?

There are very small fines for people who lapse for under 30 days – the real problems start for people who lapse over 30 days. The penalties increase by a huge margin and you are effectively paying 30% more in your annual premiums. Depending on the value of your car, you may be overpaying by thousands of dollars a year. 

Research shows that car drivers must get back on a new auto insurance plan if they cancel from their auto insurance. If the lapse is in coverage then there will be no increases on your premiums. 

What To Do If You Have Car Insurance Lapse?

There are two emergency methods to solve your car lapse efficiently:

  • Consult your auto insurance company. Ask for an agent that can help you reinstate your insurance policy.
  • Get a family member or friend to add you to their policy. There is an option to be listed as a driver on someone else’s policy – this way their policy extends to you. You can be added by a family member or a friend.

Auto insurers will be hesitant to reinstate you, however, they make exceptions for well-behaved customers: people who have never lapsed before, never made multiple claims and paid their premiums on time while they were a customer. You might incur a small fine (usually under $500) for lapsing but the small fine is a lot safer than getting in a car accident uninsured. If you are currently listed under a family policy as a driver, auto insurance companies are not likely to treat you as a high risk driver in the future.

Special Exemptions For Military

To lapse is a lot more safe for military personnel – there are special companies such as USAA, GEICO, and Esurance that have policies for military members abroad. They immediately suspend a military member’s car insurance for the time they’re aboard. This suspension is not considered a lapse henceforth they are not subject to increased premiums. If you are deploying abroad there’s a chance you won’t need your car anymore – ask your insurer to suspend your insurance. If you are a veteran and you are moving or studying abroad, you’ll need a confirmation from your DMV that you won’t be using the vehicle anymore to get the suspension.

There are certain insurers that will refuse to suspend your car insurance. In the event an auto insurer refuses to suspend your insurance, your only option is to remove yourself from that policy (in case you’re using a family policy) or outright cancel your insurance with the provider. Get to the DMV and fill out an exemption to avoid state penalties.