Laura Berry is a former State Farm insurance producer and insurance expert.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Important facts to know...

  • When you buy auto insurance, the policy will stay active as long as you’re honest on your application and you pay your premiums on time
  • If you don’t make your payment by its due date or by the end of the grace period, your coverage will lapse for non-payment of premiums
  • If you have a lapse of auto insurance coverage, it means that there was a period of time where coverage was not afforded
  • If you file a claim for a loss that occurred during the period where the policy had lapsed, the claim will be denied
  • If your policy is up for renewal and you don’t make a payment to renew your coverage, your coverage will end at 12:01 am following the expiration date listed on your declarations page

When you buy auto insurance, no matter from which insurance company, you have duties as the owner of your auto insurance policy. If you don’t fulfill your duties as a named insured driver, you could be at risk of losing the coverage that you’re paying for when you need it the most.

Luckily, your duties are pretty basic and you’ll receive a notice defining them when you sign on for your premium.

Perhaps the most important duty as a policyholder is to be honest when you’re applying for coverage. If you’re not honest during the quoting process or when you’re submitting your application, you could lose your policy shortly after you pay for it. This includes being honest about your vehicle, your driving record, and anything else your provider may ask for. If they need to know about your credit score in order to provide you with insurance coverage, you do not want to lie to them.

The next duty in your insuring agreement is to pay your premiums on time. If you don’t, your insurance policy will lapse or be canceled shortly thereafter. A lapse in coverage may not sound like a big deal, however it can come with pretty severe and pricey consequences.

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What does the term car insurance lapse mean?

A lot of industry terms are thrown around when you’re buying coverage from a standard car insurance company.

You might be familiar with the basic terms, but it’s the not-so-basic terms that can get confusing when you’re trying to understand what an agent is telling you. Misinterpreting the meaning of a word like lapse could really lead to trouble.

The auto insurance booklet that you receive when you sign up for a policy has definitions that thoroughly detail what every term means.

If you skim through your contract, you’ll find that a coverage lapse is defined as, “a time period where coverage is not afforded because the policy has been canceled or non-renewed.”

If you file a first-party claim under your policy during a lapse, the claim will be denied because you’re uninsured.

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Why do auto insurance policies lapse?

There are a number of reasons why your auto insurance coverage can lapse because of your actions or your lack of action. It’s important that you understand why an insurance company can cancel your insurance when you’re buying coverage.

When you know, you can avoid making mistakes that could leave you vulnerable on the road.

Insurance companies technically can’t cancel your policy for any reason they want after the policy has gone through underwriting.

This is called the 60-day binding period where the insurer is free to change their mind and cancel the coverage they offered. Once this period is up, the company can only cancel the policy for the following reasons:

  • You’ve been found guilty of fraud
  • You have filed a fraudulent claim
  • Your license has been suspended or revoked
  • You failed to make your premium payments

Your auto insurance due date is not like most due dates. If you’re late paying your cell phone bill or you’re late paying your cable, you can generally pay for both months the next time your bill is printed.

It doesn’t quite work like this with insurance because you’re required to pre-pay your premiums.

When you pre-pay your premiums, you’re paying for the upcoming month’s worth of coverage instead of paying for the previous month. Since you have to pay in advance, missing even one payment could result in a lapse.

Most insurance companies offer at least a short grace period for you to make your payment late without being penalized. Grace periods can last between one and 30 days. As soon as the grace period is up, your coverage will be terminated for non-payment.

Do you get a notice when your coverage lapses?

In every state, there’s a Consumer Bill of Rights that says that companies must send out notices when they take action on policies. When a policy is being canceled or non-renewed, the company must send you a letter in the mail giving you notice.

In most states, companies need to give you a ten day notice when your policy is canceling for non-payment. They must give twenty to thirty days notice for any other reason.

If the policy is not renewing, the non-renewal notice will be sent thirty to forty five days before the policy expires so that you have time to find coverage elsewhere.

If you have a loss during the period when your coverage has lapsed, there’s no point in filing a first-party claim. During this lapse, no coverage is afforded regardless of what you carry under your policy.

You can, however, file a third-party claim through the other insurer if you weren’t to blame.

Unfortunately, being uninsured could make you liable for your own damages.

Some states allow third-party insurers to deny claims made by drivers with no insurance. This is something to take into consideration before you drive your vehicle after the coverage has already lapsed.

Are there penalties for letting your car insurance lapse?

If your coverage lapses and you keep the car parked, you still have to worry about facing penalties that are assessed to uninsured vehicle owners.

Each state sets different penalties depending on how serious they are about combating uninsured drivers. Some of the common penalties assessed for insurance lapses include:

  • Vehicle registration suspension
  • License suspension
  • Vehicle impoundment
  • Reinstatement and impound fees
  • Fines for driving a car with no insurance
  • SR-22 requirement
  • Forced-placed insurance assessment

If you were afraid the penalty was going to be jail time, it’s a little less extreme than that. However, any one of these penalties could cost you a lot of money. If your coverage has lapsed, you should either reinstate the policy or shop for coverage elsewhere if you’re after a more affordable rate. When you’re not eligible for a reinstatement, you can start to compare rate quotes online by using a comparison tool.

Looking online can help you compare prices, and potentially find a company that allows you to cover yourself for longer than one month at a time, if that was what led your policy to lapse in the first place. If you were forgetting to pay or didn’t have the funds, look into companies who offer auto payments and send out reminders, in addition to looking for cheaper options.

Enter your zip code, enter your vehicle details and get quotes today using our simple and free car insurance quotes tool.