Author: Ryan Hanley, Trusted Choice
Car insurance can be expensive and forking over that premium can hurt. You may feel that you are paying for something you never use. Maybe money is tight, or you simply forgot to send in your payment. Whatever the reason, not paying your car insurance bills is a huge and ultimately expensive mistake.
In the world of car insurance, when you don’t pay your car insurance bill, your policy lapses. All this means is that you are no longer insured, so if you get into an accident you are completely on your own.
You will have to pay to repair or replace your own car. If the accident was your fault, you will have to pay for the other person’s car, their medical bills if they are hurt, and the cost of a lawyer if they decide to sue you. If they win the lawsuit, a hefty judgment will also fall to you.
In the end, saving a few hundred dollars could end up costing you hundreds of thousands of dollars and quite possibly all of your assets, if you seriously injure someone.
In addition, you will probably lose your license. Almost every state in the country requires at least a minimum level of car insurance. If you are caught out on the road or are in an accident without it, say goodbye to your driver’s license for a while.
The pain doesn’t stop there. Insurers hate a lapse in coverage and they will penalize you when you decide to start shopping for car insurance again. While a week-long lapse probably won’t have much of an effect, a car insurance lapse that last months or years will have a significant impact.
What Happens If Your Car Insurance Lapses?
If you borrowed money from a bank or finance company to purchase your car, they have a legal right to make sure their asset is protected, which is why they will require the car to be fully insured.
In almost all cases, you will be required to carry full coverage on a financed vehicle. This includes not only state required coverages like bodily injury and property damage, but comprehensive and collision as well.
Somewhere in your loan paperwork there will be a clause that spells out exactly what can happen if you let your insurance lapse. While repossession of the vehicle is always on the table, a lender’s first option will probably be imposing force-placed insurance.
Forced-placed insurance simply means that if you let your policy lapse, the lender will purchase a policy to cover the vehicle and bill you for it. If you fail to pay for the policy, your car will almost certainly be repossessed.
Forced-placed car insurance tends to be dramatically more expensive and offers reduced coverage levels. It doesn’t include liability coverage or property damage, so if you injure someone, or damage their property, you are not covered. Liability insurance is required in almost every state, so technically you will be breaking the law if you are out driving with just a forced-placed policy.
The Penalty for a Lapse in Car Insurance:
Now for the big surprise, the cost. It will vary by your circumstances and the state you live in, but it is not uncommon for forced-placed insurance to cost three to five times more than a normal policy. Insurers claim that their risk goes up because they are insuring a driver without their usual screening, so the price must go up.
Despite the sticker shock, you will have to pay up if you want to keep your car. Lenders will quickly repossess the vehicle if it is left completely uninsured.
The good news is that it’s fairly easy to get rid of a forced-placed policy; you just need to get your insurance. Once you can prove to your lender that you have your own policy, they must remove their forced-placed insurance. Most states only allow insurers to collect forced-placed premiums for the exact number of days you are uninsured, so if you are only uninsured for five days, that is all you should be billed.
What to Do after a Car Insurance Lapse?
If you find yourself with a lapsed policy, the first thing to do is not drive the car under any circumstances. An accident or ticket for driving without insurance will greatly complicate the situation. The next step is to end the lapse as quickly as possible. The longer the lapse, the more you will pay when you jump back into the insurance pool.
If you simply forgot to pay your bill and your policy has been lapsed for three days or less, call your insurer and ask if they will reinstate your policy. In many cases they may be willing to help you out. Once your lapse has gone past a week, you will most likely be looking at a higher premium, even if your current insurer is willing to reinstate your policy.
If you have been without insurance for months, expect to pay a significantly higher rate, and some insurers may not be willing to insure you at all. In the end, you will eventually find an insurance company that will write a policy for you. If you keep your nose clean for six months to a year, your rates will start to fall.
Here are a few tips for finding an affordable policy after a coverage lapse:
- Explain the lapse: There are legitimate reasons for a lapse, such as a move out of the country, a long trip, or military deployment. Many insurers will forgive lapsed insurance due to military deployment, as long as your vehicle was kept in storage and not driven. Explain the reason for your lapsed insurance and see if your insurer will help you find a better rate.
- Shop around: This is probably the best way to find an affordable policy after a lengthy lapse. Insurers rate risk differently. While some insurance companies will turn you away, others will be happy to offer your coverage, at a price. Make sure you’re comparing apples to apples when it comes to coverage levels and deductibles when shopping.
- Discounts: In order to lower your premium, ask for any and all discounts that you qualify for. Bundling coverages, paying your annual premium in full, passing a defensive driving course, and even going paperless on your policy can result in discounts, which can all add up to a more affordable policy.
- Reevaluate: Insurers will not keep you in the doghouse forever. Once you have gone 6 to 12 months without incident, ask your insurer to recalculate your rates or shop your coverage.
R.S. Semler Insurance Affiliate of Robertson Ryan Insurance is Washington County’s insurance expert. With 50 years of insurance experience, we provide peace-of-mind to our customers who want to protect what they have worked so hard to attain. Our expertise is in personal, commercial and life insurance. Call us today at 800-414-5875 or check us out on the web at www.rssemler.com and take advantage of receiving a free quote for any of your insurance needs.