Pas Trusted News – Does a Lapse in Car Insurance Coverage Affect Rates?

Key Takeaways

• A lapse in car insurance coverage can result in higher rates.

• Driving while uninsured can leave you open to legal consequences.

• Most states require drivers to carry a minimum amount of coverage.

A lapse in coverage can cause you to pay more for car insurance. Insurers may classify you as a high-risk driver, which can result in higher rates and may even cause some of them to decline to insure you.

You also risk legal penalties if you drive without car insurance. Most states require a minimum level of car insurance in order to drive legally.

If you receive notice that your car insurance policy has lapsed or is about to lapse, you should take immediate action.

If your policy lapses and you are caught driving without coverage, you risk legal penalties such as fines, license and registration suspensions, and even jail time. You may also be required to purchase a new car insurance policy and have that insurer file an SR-22 form.

Additionally, you may be classified as a high-risk driver in the eyes of some insurance companies, which can impact your eligibility with certain carriers. If you lease your car or haven’t paid off your car loan, you could also risk paying for force-placed insurance with interest or having your vehicle repossessed for violating the terms of your financing agreement.

Even if you live in a state that doesn’t require car insurance, having a car accident without it can be financially devastating because you will have to pay for any and all damages you are responsible for out of pocket.

Yes, having a lapse in car insurance can affect your rates. How much your premium will increase depends on the insurer and how long your coverage has lapsed.

Some insurers will consider you as a high-risk driver – with greater likelihood of claims and missed payments – and may decline to insure you. In that case, you may need to pursue coverage with a nonstandard auto insurance carrier. These companies typically offer insurance to drivers with multiple moving violations or accidents on their record.

In general, drivers with a speeding ticket, an accident, or a DUI on their record can expect to pay more for insurance than drivers with a clean record.

Reinstating your lapsed auto insurance policy or obtaining a new one with a standard company doesn’t mean you won’t see an increase in your premium. For example, The General lists the following rate increases on their website:

  • If the lapse lasted less than 30 days, you may see a rate increase of 9%.
  • If the lapse lasted between 30 days and 60 days, you may see a rate increase of 48%.
  • If the lapse lasted more than 60 days, you may not be eligible for reinstatement.

Additionally, many insurers consider your insurance and payment history when factoring your rates and offer discounts for longevity (or being insured continuously with a carrier for a set amount of time) and good payment habits. Therefore, having a lapse in coverage, even for a day or two, can make you ineligible for additional savings.

A lapse in coverage is the gap between having active car insurance and having no insurance. Any period of time, even one or two days, is considered a lapse. The associated consequences depend on the length of the lapse, the specific insurance company holding your policy, and your state’s insurance laws.

Lapses in coverage can be caused by a wide variety of instances, including:

  • Not paying your premium. Whether the invoice got lost in the mail or your automatic payment failed to process, your car insurance can be canceled if payment is not received. Carriers are required to notify you before officially canceling your policy, and you may qualify for reinstatement without a lapse in coverage if you pay the outstanding balance immediately.
  • If your insurance company doesn’t renew your policy due to excessive claims or violations. If you have too many claims within a set time period, especially at-fault accidents, your insurance company may not offer you a renewal. The same is true if you have too many tickets or if you have a major violation like a DUI.
  • If you fail to renew your policy. Insurance companies typically send your renewal policy and invoice well in advance of the effective date, so if you wish to renew, watch for the proper documents and pay on time.
  • Gaps between policies. If you decide to switch insurance carriers, make sure the effective date of the new policy lines up with the cancellation or expiration of the old policy to avoid a gap in coverage.
  • Gaps between owning a car. If you sell your car before purchasing a new one or if your lease on a vehicle ends and you won’t be able to lease a new one immediately, canceling your current auto insurance policy may still be considered a lapse in coverage, depending on the carrier.
  • Missing information and/or documentation. Insurance companies will occasionally request additional information or documentation from you. Failure to complete these requests may result in the cancellation or nonrenewal of the policy.
  • Misrepresentation. Falsifying information on your insurance application or failing to disclose certain details, such as having a young driver in the household, can be grounds for voiding your policy or denying claims.

To help avoid a lapse in auto insurance coverage, consider the following:

  • Pay on time. While many insurance companies provide grace periods before canceling your policy, paying on time will help avoid any confusion and additional fees.
  • Set up automatic payments. You may be able to set up automatic payments from a bank account or credit card (be mindful of the expiration date) online, through the insurer’s mobile app, or by calling your agent or a company representative.
  • Sign up for electronic documents. To avoid a delay in receiving your invoice, see if your insurance company offers paperless billing options.
  • Switch carriers with proper effective dates. When you decide to purchase a new auto policy with a different insurance company, make sure the effective date lines up with the cancellation of your old one.
  • Ask about ways to lower your premium. You may be able to change your payment plan, change your coverage, or qualify for additional discounts that can help make your policy more affordable, thus reducing the likelihood of missing a payment.
  • Suspend your coverage or start a non-owner policy. If you won’t be driving for a short period of time, ask your agent or insurance company if you can simply suspend your coverage rather than cancel the policy. This can help avoid a lapse in coverage if you’re traveling for an extended period of time, deployed by the military, or in between cars. You may also be able to switch to a non-owner car insurance policy if you won’t own a car for a while.

The decision to reinstate a lapsed insurance policy rests with the insurance company and can depend on how many days have passed and your payment history. If your policy lapsed due to nonpayment, you may be able to have the policy reinstated without being penalized for having a lapse in coverage, meaning that the insurance company will reinstate the policy as of the same day it was canceled.

Most companies require the outstanding balance and any late or reinstatement fees to be paid immediately and a signed no-loss statement to do so.

However, some carriers will reinstate your policy as of the day payment is made, rather than when the policy was canceled, so the time in between will be considered a lapse in coverage. Other companies will not reinstate a policy at all, so you would have to purchase a new one.

Contact your agent or insurance company immediately upon receiving a cancellation notice to see what options are available.

What is a no-loss statement?

A no-loss statement is a form the insured must sign to verify that they did not experience any losses and will not be filing any claims during a specific period of time, usually during a lapse in coverage. Some insurance companies require this form to reinstate a car insurance policy to help prevent fraudulent claims, like the insured changing the date an accident occurred so they have coverage for the damages.

If your current carrier won’t reinstate your coverage, you should begin to look for new car insurance as quickly as possible to avoid any legal penalties.

  1. Find out what your insurance options are. You may find that some insurance companies will not sell you a policy because you’re considered a high-risk driver or are required to file an SR-22 form, which not all insurers do.
  2. Determine how much coverage you need. If you have an older vehicle, you may only need a basic policy that meets your state’s minimum liability insurance requirements. On the other hand, if you own a car that is financed or leased, you may be required to obtain full coverage.
  3. Get quotes from several insurers. Experts suggest calling at least three different companies. When getting your quotes, be sure to disclose the fact that you have had your insurance lapse and for how long.
  4. Compare premiums, coverage amounts, and limits.
  5. Buy your new car insurance policy.

If you are in a car accident and your insurance has lapsed, you may be financially responsible for the injuries and damages you cause and also subject to legal penalties. The specifics will depend on where you live and who is deemed responsible.

In tort states, at-fault drivers are responsible for paying vehicle repairs, medical bills, and any other damages they are deemed liable for. Without insurance, they may be sued by the other driver to obtain compensation – plus they remain financially responsible for the injuries and damages they personally sustain.

No-fault states require drivers to claim damages under their own policies and limit what they can sue other drivers for. If your policy has lapsed, you will be responsible for paying for your vehicle’s repairs and your medical visits directly and will not have an active policy to file a claim under. In the event you are sued by the other driver, you will also have to pay for legal defense and any settlements out of pocket.

A grace period is the period of time you have to pay past-due car insurance premiums before the carrier cancels your policy. Insurance companies are legally required to provide notice before canceling your policy, so if you miss a payment, you’ll receive a cancellation notice and invoice in the mail or via email.

The notice will alert you that payment was not received and will provide the amount due, any late fees that may apply, and the date by which payment must be received to avoid cancellation.

The length of notice depends on your state’s laws, but it’s typically 10 to 20 days before the cancellation takes effect, thus giving insureds time to pay any outstanding balance and fees to avoid a lapse in coverage.

If you receive a cancellation notice, contact your insurance agent or company as soon as possible to discuss your options and make payment.

For more information about auto insurance, see the following guides:

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