Before missing a payment or calling to cancel, read on to learn about the consequences of coverage gaps, what to do if your policy lapses, and when it can make sense to stop your coverage.
What Happens When You Let Your Car Insurance Lapse?
When you let your car insurance lapse, you’re allowing your coverage to end. Some reason for that include:
You don’t have the money to pay your bill.You sold your only car.Your only vehicle broke down.Your only car was in an accident.You won’t be driving for an extended period.You are moving away fro, home temporarily,You forgot to pay your bill.
Before allowing your coverage to end, it’s important to understand the various consequences that include: fees, suspended registrations, personal liability in accidents, and higher insurance costs following insurance gaps.
Fees and Government Consequences
First, if you continue to drive without coverage, you’ll be breaking the law (unless you live in New Hampshire or Virginia). If you’re caught, you may face fees, vehicle impoundment, license suspension, or even jail time. The consequences vary by your state and situation. Further, some states have systems to automatically notify the department of motor vehicles when a driver’s insurance lapses. If it’s not reinstated within a certain period, the driver may face consequences. For example, in Idaho, drivers without coverage for two consecutive months are given 30 days to get coverage or their registrations are suspended.
Personal Liability for Accidents
If you’re found to be at fault in an accident while driving without insurance, you could be headed for financial hardship without insurance. In this case, you could end up personally responsible for property damages, medical expenses, and more. These costs can be very high and potentially cause significant long-term financial strain. The average cost of vehicle property damage due to a car crash was $4,600 in 2019, while injury costs (including death) ranged from $12,500 to over $1.7 million, depending on the severity, according to the National Safety Council.
Higher Costs for Coverage Gaps
Auto insurance companies often offer a discount for carrying continuous coverage. That means if you’ve been continuously insured, your premium will be lower than drivers who have had coverage gaps. So if you take a break from having coverage, you’ll likely face higher costs when you reinstate coverage.
Preventing an Insurance Lapse
Instead of letting your insurance lapse, consider all your options. For example, if you want to cancel because you’re in a financial crunch, you risk worsening your financial situation by dropping your coverage. Instead, you can call your agent to ask about ways to save on your policy, you can shop around for the best deal, or you can reduce your coverage. If you have another situation, for example, you’re in between vehicles, won’t be driving for a while, or if your car is out of commission until it’s repaired, call your agent to find out what options are available to you. Think carefully through all the pros and cons of canceling auto insurance.
What To Do if You Have an Insurance Lapse
If your insurance lapses, you have two options:
Call the insurance company and request reinstatement Ask to be listed as a driver on a family member’s or friend’s policy
Reinstatement
If you haven’t had a previous insurance lapse and haven’t recently had multiple claims, you have a good chance of being reinstated. Reinstatement is when your original policy is put back into force.
Join Someone Else’s Policy
If your policy has lapsed but you don’t want to reinstate it, you can ask a friend or family member to add you to their policy. This might be an ideal option if you don’t have your own vehicle. As long as you’re listed as a driver on an insurance policy, you won’t be treated as high-risk when getting insurance in your name.
Is There a Grace Period Before the Lapse Is Official?
Grace periods give you an amount of time between a missed payment and a cancellation that would result in a lapse in coverage. States require insurers to notify policyholders before canceling their policy, and the grace period typically ranges from 10 to 20 days. For example, New York requires automobile insurers to give at least 15 days’ notice of cancellation when the reason is nonpayment. Check your state laws and with your insurer so you know how much time after a missed payment to avoid cancellation.
Exceptions: When You Can Let Insurance Lapse
There are only a few reasons to go without insurance, and most of the exceptions come with stipulations. These include:
Military employees: Service members can obtain insurance without prior coverage due to deployment or training on base. Newly licensed youth drivers: Newly licensed youth drivers may have a difficult time finding coverage with a preferred carrier on their own, so it’s best to start by being listed on a parent’s insurance policy. Drivers maintaining continuous motorcycle insurance: Motorcycle riders may be able to drop vehicle coverage by getting pre-approval from their auto insurance carrier. Exceptions for motorcycle riders came about due to drivers downsizing to motorcycles. However, don’t expect this strategy to work with every carrier. Retired drivers: If you don’t plan to ever drive again, it will make sense to cancel your coverage as you won’t have to worry about price hikes when you get coverage again.
The Bottom Line
When money is tight, it might seem like a good idea to cancel your car insurance to save, but it’s rarely a wise financial move. Driving without insurance is against the law in most states, and it can also end up being costly. Weigh the consequences and alternatives carefully to make the best decision for today and the future.
