Why you should not let your car insurance lapse

Letting car insurance lapse may cost you more than you expect, even if you don't own a car anymore. When your coverage lapses, you lose credit for being continuously insured, which can cost you up to 50% more next time you buy car insurance. Even worse, some carriers won't give you a quote if you have a lapse in this tight insurance market, even if you've been insured with them before.

What is a lapse in car insurance coverage?

A lapse in coverage is any period in which you are not the named insured or additional insured on a car insurance policy in the US. It has nothing to do with whether you own a car, if your car is drivable, or if there's a car on your car insurance policy (so, non owner auto policy counts as valid car insurance).

Why does a lapse in car insurance coverage matter?

Having a lapse matters for two reasons, price and availability.

First, almost all insurance companies offer significant discounts for customers who have proof of prior insurance, aka continuous insurance. These discounts are often around 30%, and may vary based on how long you have had insurance, though you typically need to have been covered for at least the last six months.

Second, some companies won't write insurance at all for people who have not been continuously insured. The pickiest of them require three years of continuous prior insurance, and every time you have a lapse, the clock starts over. These insurance companies typically offer the best rates and sometimes better coverage, so if you can stay insured, it'll be easier on your wallet.

Why does a lapse in insurance affect my car insurance rates?

Insurance companies develop their pricing by doing statistical analysis of which groups of customers have more losses and which have fewer. Overall, people who stay continuously insured have a significantly lower risk of accidents. Since they cost insurance companies less on average, they pay lower rates.

Why is this true? There are lots of underlying reasons, but some reasons could include that people with a lapse have less recent experience driving and are a bit rusty, or people with a lapse have moved recently and may be less familiar with local traffic patterns.

How long can my insurance be lapsed before it affects my rates?

Usually any lapse will affect your rates, but lapses longer than 30 days often lead to even higher insurance rates.

Does the reason for a lapse in insurance matter?

Yes and no. Policies can lapse for lots of reasons - a cancellation if you don't pay your bill, letting the policy expire at the end of the term, cancelling because you sold your car. The fact that there's a lapse is what triggers the loss of the proof of prior insurance discount, not the reason. The reason can matter, too, though. For example, if you've had a non pay cancellation and there's an unpaid balance, that can affect your credit score, which can increase your insurance rates.

Do insurance companies know if I've had a lapse?

Yes, they do. There are databases that will pull up prior insurance information for some states and prior insurers. If your information isn't in the database, the insurer will usually ask you to send in the declarations page from your last policy. If you fail to send it in by their deadline, they will remove the discount from your account back to the beginning of your policy with them, or, in some cases, cancel your policy.

Can a lapse in car insurance lead to legal penalties, besides higher rates?

If you own a car and it's uninsured, yes. It's illegal to have an uninsured auto in the vast majority of states. In some states, you may be unable to renew your registration or even your drivers license. And, if you get in a crash driving while uninsured, not only could you end up in financially ruinous position, but you'll also likely get cited for lack of insurance and end up with additional insurance and court requirements.

If I don’t own a car anymore, why do I need to maintain car insurance?

If you're not driving, you don't need to maintain car insurance, but it can be a good idea. Non owner auto policies, which give you liability coverage when you're driving a car you don't own for personal use, keep your continuous insurance streak in place. They are relatively inexpensive - typically about 1/3 of what you'd pay if you had a vehicle. If you are going to lease or buy another car within the next year, it's often well worth it to get a non owner policy.

If you are driving but don't own a car, a non owner policy can be peace of mind. Typically, the car owner's insurance covers you if you only occasionally use their vehicle, but there's no good way to know if they are insured, or if their limits are enough to protect you. You can also use a non owner policy to waive the purchase of liability insurance when you rent a car.

How can I reinstate my insurance after a lapse?

If your insurance has lapsed briefly, less than 30 days, your agent can usually get your carrier to reinstate your policy. You may lose some discounts, and crashes that happened while you were lapsed will typically not be covered. Get in touch with your agent right away if this is you.

What should I do if insurance carriers refuse to quote me due to a lapse in my insurance history?

There are absolutely carriers our there that will insure people with a lapse in coverage. An independent insurance agent (like Surround Insurance!) can help you find one.