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What happens if your car insurance lapses?

Yahoo Personal Finance· PaperFox via Getty Images

In almost every state, car insurance is a non-negotiable requirement. It’s critical to protect yourself by maintaining at least the state minimum liability car insurance on your vehicles without fail.

If you let your insurance lapse, the consequences could be severe.

Car insurance lapse explained

A car insurance lapse is a period of time that your vehicle is not covered by an active auto insurance policy. You might find yourself without car insurance coverage because:

  • You failed to pay your car insurance premium.

  • Your insurance company canceled your policy.

  • You didn’t renew your car insurance policy.

  • Your auto insurance policy has expired.

  • You switched auto insurance companies, and there was a gap between when your old policy ended and the new policy began.

Most insurers offer a car insurance lapse grace period. So, you typically don’t have to worry about your insurance company canceling your policy if you miss your payment by a day or two.

The grace period in most states ranges between 10 and 20 days. If your insurance company intends to cancel your policy (due to lack of payment or some other cause), it should notify you via mail or email before doing so.

Consequences of an insurance lapse

A lapse in coverage can lead to serious problems, starting with the fact that it will be illegal for you to drive in most states. If you get caught driving without car insurance, the legal and financial repercussions vary by state but could include:

  • Ticket and fine

  • Driver’s license suspension

  • Vehicle registration suspension

  • Towing of your vehicle to an impound lot

  • SR-22 insurance requirement

  • Jail time in certain states

It’s also important to note that if you let your insurance policy lapse, finding affordable coverage again in the future could be difficult. When you shop for a new insurance policy, you’ll likely be classified as a high-risk driver and be quoted higher rates than what you paid in the past due to the gap in coverage.

If you’re caught driving without insurance, your state may require you to file an SR-22 form, also known as a certificate of financial responsibility. This form proves that you have car insurance that meets your state’s minimum requirements. If you have to file an SR-22 form, you’ll most likely see a big increase in your insurance rate, and you might have a hard time finding coverage from traditional car insurance providers in your area.

Of course, the biggest risk of driving without insurance happens if you’re in a car accident while uninsured. If you cause an accident while driving without insurance, you could be responsible for paying the other parties’ medical expenses, repair and replacement costs, legal fees, and more.

What to do if your auto policy lapses

If you find yourself in the unsettling situation of not having car insurance, your best bet is to make a plan to resolve the problem as quickly as possible.

Here’s what to do in the case of a car insurance lapse:

  • Understand your reinstatement options and requirements. Talk to your insurance company about how to get your car insurance coverage back in place. If you’re still within the grace period, pay up your policy as quickly as possible.

  • Pay outstanding premiums and fees to reinstate coverage. As soon as possible, pay any past-due insurance premiums, late fees, and any other necessary charges to reinstate your coverage. If too much time has passed, you may have to start a new policy or switch insurance providers.

  • Understand the impact on future insurance premiums. If your car insurance company isn’t able to reinstate your existing policy, you might face higher insurance premiums for the foreseeable future. Shop around for car insurance quotes to get the best rates you can find.

  • Talk to professionals. Don’t be afraid to reach out to insurance agents for advice. If you’re facing SR-22 requirements, higher premiums, or other complications, seeking guidance from an insurance professional may be especially important.

Read more: These are the minimum car insurance requirements in all 50 U.S. states

How to avoid a car insurance lapse

The consequences of a car insurance lapse can be severe. Here are some simple tips to help you avoid any unplanned gaps in your coverage.

1. Set up automatic payments

Most insurance companies will allow you to schedule automatic drafts for your monthly premiums. Some may even offer you a car insurance discount if you authorize an automatic electronic funds transfer (EFT) from your bank account each month. And if you can afford to prepay your premium for 12 months or even six months at a time, you might be eligible for even bigger discounts with some insurance providers.

2. Communicate with your insurance provider

It’s important to be in touch with your car insurance company, especially when there are changes in your coverage needs. For example, if you decide to sell your vehicle, you shouldn’t stop making payments on your existing car insurance policy without contacting your insurance company first. Otherwise, your insurer may cancel your policy, and you could find yourself in a higher risk category the next time you shop for auto insurance coverage.

Likewise, it’s important to be careful when switching car insurance companies. You don’t want to cancel your old car insurance coverage too soon in this situation. While it’s smart to shop around for more affordable car insurance rates, making sure your new insurance policy is in effect before canceling your existing policy to avoid coverage gaps is critical.

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Maintaining coverage without owning a car

If you’re in between vehicles, a non-owner policy may be a good short-term solution to help you avoid an insurance lapse. This type of policy might help you keep your insurance rates lower over time by ensuring there are no gaps in your insurance coverage. But it’s important to understand that non-owner insurance has limitations.

Non-owner insurance doesn’t cover damage to vehicles you rent or borrow. It covers injuries to others and property damage that may occur when you’re driving a vehicle you don’t own. If you live with the owner of the car you’ll be driving, however, you would need to be added to that person’s insurance policy.

A personal umbrella insurance policy could also provide you with extra liability protection when your other auto insurance coverage isn’t enough. Likewise, you could consider purchasing rental car insurance to provide you with extra protection when you rent a vehicle.

As with any type of insurance, it’s important to do your research. You should review the benefits of each option and see if they are worth the cost.