UPDATED: Aug 12, 2020
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Sometimes, car insurance coverage lapses happen. Sometimes it happens when you get deployed overseas. Other times, it’s because you get behind on your monthly payments.
You may have even been recently convicted for a violation that your insurance company deems worthy of coverage cancellation, or are returning to the road after several months or years without owning a vehicle.
Regardless of your situation, picking up where you left off and starting a new auto insurance policy can become an expensive headache very quickly. Trying to compare auto insurance companies and get a new policy started can be overwhelming.
We’re here to help.
Below, we’ll get into how you should navigate these treacherous waters in order to get back on the road and driving legally with an insurance policy you can actually afford.
Lapse of Coverage Penalties
If your car is still registered with your local DMV, but your insurance coverage gets canceled for whatever reason, you won’t just be in trouble with your insurance company — you’ll be in trouble with your state government, too (the only exception to this is if you sell or transfer ownership of your vehicle before canceling your coverage).
Even if you don’t get cited for driving without insurance while you’re on the road, there are many states where insurance companies are legally required to inform your local DMV that you no longer have coverage and that you may be driving illegally.
Many states will revoke your license, charge you heavy fines, and may even require you to file an SR-22 in order to be able to drive legally once again.
You’ll have to check with your state laws to make sure you know what you’ll have to pay to achieve legal status once again, but some common types of fines include:
- A license reinstallment penalty costing anywhere from $14 (CA) up to $500 (MA). This fee is in some states and is likely to increase with multiple offenses.
- Instead of a flat fee, some states charge a small financial penalty for each day that you go without insurance. Depending on your state, this daily compounding fee may also be combined with a flat penalty starting on day one of your lapsed coverage. South Carolina drivers are lucky, though; their daily compounding fee is capped at a total of $200. Most other states will continue charging you until your coverage is reinstated and the fees are paid.
- In still other states, the laws are much more relaxed. North Dakota, New Hampshire, and Iowa have no financial penalties at all for a lapse in coverage. In Montana, they will be forgiving of your first lapse in insurance; but subsequent lapses will be subject to fines and legal penalties. In Missouri, nobody will know that your coverage has lapsed until you get pulled over by the police. But if you do get pulled over, you’ll have to face some very serious consequences.
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Common Causes for a Lapse in Car Insurance Coverage
There are many different you may end up suffering a lapse in your car insurance coverage. But the two main causes are either financial or circumstantial:
- Missed payments or failure to renew. This is one of the most common forms of coverage lapse. This is also the most common scenario in which your local DMV will be immediately notified that you are no longer carrying insurance coverage as required by law. And as soon as that happens, you can expect to deal with any of the financial penalties listed above.
- Moving and/or traveling. Active duty military servicemen and women, along with college students (whether traveling within the country or abroad for studies) are the most vulnerable to being penalized with a lapse in coverage due to the fact that they may not be driving the car they own for many months at a time or longer. If you fall into either of these categories, you should know that most car insurance companies are willing to work with you to keep your insurance current while you aren’t using your vehicle. Many even offer significant premium discounts while you are away, or will even suspend your coverage for free under special circumstances.
- Selling your car. If you sell your car for whatever reason and cancel your insurance coverage in turn, you’re going to find a tough time finding an affordable insurance policy if and when you decide to start driving again. It may not make any financial sense whatsoever to maintain a car insurance policy if you don’t own a car; but even if you had a perfect driving history in the past, the lapse in coverage still gives your prospective insurance company the right to charge you a higher premium — or to refuse to issue you a policy altogether. However, many insurers will start offering you a reasonable rate on your monthly premiums after you have maintained your new coverage for anywhere from 6 months to a year.