Car insurance is just as popular and ubiquitous as cars, and this sheer magnitude makes it somewhat complicated. There are so many terms and conditions involved with auto insurance that it becomes very common to miss out on some important factors. But with over 6 million road accidents every year in the US that will certainly increase in the coming years, it is very important to keep your car insured. And it is equally important to know all the crucial details about car insurance.
This article will describe in detail what an insurance lapse can do to your coverage rates. Even the smallest things can make your insurance rates go up. We’ll also mention when an insurance lapse is possible and how to avoid it. So let’s get started.
How Insurance Companies Work
Every car that you see on the roads must have liability insurance. In 49 states out of 50, liability insurance has been made mandatory. The other insurance policies such as collision insurance or comprehensive insurance are optional but recommended to have.
The cost of repairing a vehicle is very high, and that is not a shocker. Anyone who has been in a workshop or a garage and asked about the price of fixing a dent or a simple paint job would know how ridiculously expensive the prices could be. That’s not all. We don’t need to mention the cost of medical treatments in the US without insurance. An ambulance ride in the US costs so much, that it would make someone with a severe leg injury want to walk to the hospital but avoid the ambulance ride.
So when purchasing an auto insurance policy, the insurance company is taking most of your share of the risk. If you get in an accident, you’ll have to pay a relatively small amount while the company will pay the rest. This is why these companies assess every little to large risk factor associated with the policyholder.
Any factor that increases the risk of an insurance claim, the company offsets the risk by increasing the price of the insurance policy. The most evident and direct example of this would be your driving record. People with bad driving records will have to pay a higher price for their auto insurance policy. It is also very difficult for them to find great insurance rates, even when car insurance providers are cheaper.
Out of all the different factors that affect your insurance rates, of which some are obvious like driving record and some are completely baffling such as credit score, having an insurance lapse falls somewhere under the baffling section. Why are insurance rates affected by a lapse in your policy period? Let’s find out.
What is a Lapse in Car Insurance?
A “lapse” in car insurance refers to a period, however brief when you and your car were not covered by any active car insurance policy. Let’s say that you have an insurance policy from the year 2019 to 2021. But for some reason, there is a lapse in the insurance coverage. You did not have an auto insurance policy from 2021 to 2022. The reason could be many, but insurance companies tend to consider the worst-case scenario.
So why is insurance lapse considered a negative thing for your insurance rates? Because auto insurance companies are as alert and cautious as a disguised deer at a lions’ buffet party. These companies consider insurance lapses as either failure to pay the insurance premium or being denied an insurance claim, or in the worst-case scenario, being completely dropped by their insurance company due to insurance fraud.
Whatever be the reason, an insurance lapse will always be met with raised eyebrows. Insurance lapses put a negative effect on your insurance rates. You’ll have to pay higher prices for both insurance policy and premiums. How much more?
A study showed that an insurance lapse that was under 30 days increased the rates of insurance by 8%. If the 30-days mark is crossed, the expected price hike would be by 35%. Imagine paying 35% more for your auto insurance policy just because of an insurance lapse. These are not exact numbers, and each company treats insurance lapses slightly differently. But Geico or Allstate, every company will charge you more after an insurance lapse.
What to Do After an Insurance Lapse?
Insurance lapses can occur due to many reasons. The most common one is failure to pay the insurance premium. While the reason for this could be as simple as forgetting to make the payment or something severe like not having the money to pay for it. But to insurance companies, all it shows is higher risk. And with higher risk comes higher prices.
Another reason for an insurance lapse, which is surprisingly common, is an insurance policy switch. Many people switch their auto insurance companies for a better, cheaper one. While this is okay to do, the problem is when they cancel their current policy before the new policy is active.
Let’s say that someone bought a new policy and before it could be activated, they canceled their previous policy. This will create an insurance lapse, and if for some reason, there is some issue with the activation of your new policy, you’ll be in a pickle.
What to do if you have an insurance lapse? If this lapse was due to the failure of premium payment, then all you can do is talk to your insurance agent and request to reinstate the policy. Some companies will let you do that, and some might charge you extra, but talking to your insurer is the only way to get out of this lapse.
When switching insurance policies, cancel your previous policy only after your new policy is active. But never drive your car without an active insurance policy. If you get in an accident without an active policy, things can go from bad to worse in a second.