Insuring against unforeseen events gives you financial security and peace of mind. You may maintain that feeling of security by avoiding coverage gaps or times when your insurance is not in force. Let's examine how insurance coverage can lapse, the repercussions you might experience, and how to stop or fix a lapse.
Key Takeaways
- It may be risky if you experience unforeseen circumstances when your insurance lapses.
- Several insurance companies offer grace periods to help you prevent an insurance lapse due to a missed payment.
- You could have to pay more for new coverage after an insurance gap.
What Is an Insurance Lapse?
When your insurance policy expired and you didn't have new coverage to replace it, you experienced an insurance lapse. This can happen for reasons including:- You might have forgotten to pay your premium,
- It was not possible to pay the premium before the deadline.
- The policy is not renewed.
- Due to factors like too many submitted claims, your insurer decides to cancel your coverage.
- The beginning and finish of new and old policies are not correctly timed.
When Does Coverage Lapse?
Insurance lapses can occur at various times, depending on the type of insurance. For instance, your policy can expire quickly if you don't make your auto insurance payment on time. Unless your policy contains a cash value, like some whole life insurance policies, the same can occur with many other types of insurance policies. In that instance, your coverage could expire once the cash value has been used up. Insurance policies frequently offer grace periods following missed payments so that the coverage doesn't end immediately. Suppose you can make the payment and reinstate the policy before the insurance provider formally cancels it. In that case, you can keep the coverage offered by the policy during the grace period, or at least certain advantages. Companies and state legislation may have different grace periods. State rules often allow your insurer between a 10- and 20-day grace period before canceling your policy regarding car insurance, for instance.Consequences of Different Types of Lapsed Insurance
Here are a few potential outcomes linked to various insurance types when a policy expires.Car Insurance
Most states have minimum liability limitations for auto insurance. Driving without insurance can result in severe fines, license suspensions, jail time, and other penalties. Additionally, you risk having your car seized and being forced to maintain an SR-22 for some time. Your lender may insist that you maintain specific coverages, typically greater than the bare minimum required by the state if you lease or loan an automobile. If insurance lapses, they may either reclaim your vehicle or buy a new coverage and charge it to you (typically at a higher cost). More details about this could be found in your loan terms. Another big risk is driving without insurance. You can be responsible for accident-related fees, such as vehicle damage costs and medical bills for you and the other party if you cannot get your insurance policy reinstated. Your wages may be withheld if you cannot pay those expenses upfront. Additionally, if your state permits it, insurance companies may view you as a high-risk driver and raise your rates due to insurance gaps brought on by cancellation. Some insurers might not give you a policy until you've been covered continuously for a certain period of time. Because some insurance providers give discounts for continuous insurance, getting a new policy can cost more than keeping continuous insurance. Keep your policy active even if you won't need auto insurance since you won't be using your vehicle for a while, such as when you travel abroad. If not, you might have to pay more for new insurance coverage when you start driving again.Home Insurance
Although it is not required by state law, your mortgage lender may do so following the terms of your loan. If they do and there is a lapse in coverage, they might buy you a policy (again, frequently at a significantly higher price) and force you to pay the payments. If your coverage lapses, your insurer can view you as a higher insurance risk. They can decline to resume your coverage, leaving you without protection in case something happens to your house or visitors are injured there. Finding new insurance, in that case, could be difficult or expensive. A wonderful asset is your house. Maintaining insurance on your house protects your investment against costs associated with unplanned catastrophes, even if you have paid off your mortgage.Life Insurance
If your life insurance coverage expires, you could lose the safety and security it provides. During a lapse, you cannot rely on the death benefit payments made to the insured person's beneficiaries. Suppose there was a lapse in your life insurance coverage. In that case, you might need to reapply for a policy with updated underwriting requirements or make up any missing premium payments with interest. As you age and your health changes, the insurance company will reevaluate how much it will cost to insure you, which could result in higher premiums. Your insurance provider may take money out of your whole life insurance policy's cumulative cash value to cover late premium payments if you have a whole life insurance policy. In this manner, the business maintains your insurance and aids you in preventing a lapse in coverage.How To Restore Coverage
You can usually continue continuous coverage after a policy has expired, keeping you protected. If your policy cannot be reinstated, you will probably need to obtain a new one from the same or a different carrier. This could entail renewing your coverage or settling a past-due balance. You should contact your insurance provider directly to determine the reinstatement requirements since procedures can differ.How To Prevent a Lapse
Try to prevent a coverage lapse altogether as they might be dangerous. Paying your insurance payment by the due date is the simplest approach to avoid a lapse. Making your payments "set it and forget it" by setting up auto-pay for your account might assist and offer a layer of confidence. You can avoid a coverage lapse in addition by:- Look around for the cheapest policy that offers the coverage you desire.
- If you're having trouble making your payments, speak with your insurer.
- Recognize when to renew and/or set up automatic renewals.
- When switching insurances, ensure there is no space between the start and end dates of the plans.
