How Gaps In Coverage Affect Auto Insurance Rates
The Impact of a Coverage Lapse on Your Car Insurance
Insurance companies take many factors into consideration when they determine your car insurance rates. These include your car's make and model, your gender and age, and your claims history.
Another significant factor is your car insurance history, whether you've had any lapses in coverage, and whether you drove while uninsured.
What Is a Lapse in Coverage?
A lapse in coverage, also referred to a gap in coverage, is any period where you do not have car insurance. There are several reasons for a gap in coverage:
- You forgot to pay your premium on time.
- Your car insurance company cancelled your policy.
- Your car insurance company went out of business.
- You lost your license and allowed the policy to lapse.
- You decided to no longer drive or own a car for a personal reason, including being out of the country.
The Impact of a Lapse in Coverage on Future Premiums
Not having to make insurance premium payments will save you money. Unfortunately, unless you never plan to drive again, your savings from a lapse in coverage are short-term.
Insurance companies look at your car insurance history as one method of determining your premium. You may be considered a “high-risk driver” if you’ve let your coverage lapse or if you were driving and/or in accident while uninsured.
Once you are considered “high-risk,” you will likely find that new car insurance rates will be significantly more expensive than if you had continued your former policy.
You may even be denied coverage by providers on the open market, at which point you would need to obtain insurance through your state’s automobile insurance plan, which can be much more expensive.
Aside from the monetary impact on future premiums, driving without insurance can be costly in other ways.
The Cost of Driving Without Insurance
Almost all states require that drivers have some type of car insurance or a financial bond. This means you’ll end up having to purchase car insurance again if you plan to drive at all.
If you do drive without reinstating your auto insurance (see below) and get caught without the minimum required car insurance coverage, you can face:
- Driver’s license suspension.
- License reinstatement fees.
- SR-22 proof of financial responsibility filing requirement.
- Jail time.
Even more significant are the costs associated with an accident while uninsured. You could end up owing thousands of dollars you can’t pay without the appropriate coverage. If this occurs, you could lose valuable assets, such as your house.
Alternative Solutions to a Coverage Lapse
If the change in your driving habits is only temporary (e.g., travel), talk to your insurance agent. Your agent may be able to provide some alternative solutions to simply giving up your coverage.
You can also consider placing a bond if your state allows. The money is only used if you do have an accident. If you are not driving, you cannot have an accident.
Some states have provisions for low-cost insurance; check the availability as an alternative to a gap in coverage.
Reinstating Lapsed Coverage
Your first step in reinstatement after having a lapse in auto insurance coverage should be contacting your insurance agent or company directly. Many companies do have provisions for a grace period. If you simply forgot to pay your premium, you may not face any repercussions. Note that grace periods do not usually extend past 30 days. If your employer insured you or you were in the military, your gap may also be forgiven.
If your insurance company dropped you or went out of business, you need to immediately begin searching for a new company.
You should also be prepared for fines that may be imposed by your state. Several states have a system for verifying current insurance and impose fines to drivers who allow their coverage to lapse.
Depending on the reason for your gap in coverage, you may face higher premiums for 6 months or so after reinstatement (although this may be significantly increased if you were found driving or in an accident while uninsured).
If you maintain a good driving record and do not allow your car insurance to lapse again, your rates should return to normal relatively quickly.
Amanda Lautieri Limited Lines Auto Agent