Insurance can be confusing and tricky. But the consequences of letting your insurance lapse might shock you! With help from this blog, you’ll learn what happens when you have an insurance lapse and how to avoid it. Read on to find out more!
Having insurance has become increasingly important in today’s society, as it provides financially sound risk management protection for individuals and businesses. Unfortunately, lapses in coverage can happen – whether it is due to negligence, financial difficulties, or other reasons. When this happens, understanding what could occur if you let your insurance lapse can be invaluable information.
By becoming aware of the potential problems posed by a lapse in coverage, you can make the best decision for yourself and those around you. This guide will provide an introduction to what happens when your insurance lapses and offer strategies to resolve any issues created by the lapse.
Reasons for Insurance Lapse
Having valid insurance coverage is essential to protecting your assets, as well as providing access to quality medical care. But accidents and life events happen – so what happens if your insurance policy lapses for any reason? Knowing why and when an insurance policy can lapse, and the consequences that you’ll face will help prepare you to make the necessary adjustments if needed.
There are a few possible reasons that an insurance policy might lapse, including:
- Non-Payment of Premiums: If you fail to make the required monthly payments on your policy, your coverage will be terminated due to a lapse of payment.
- Insurance Fraud: If any fraudulent activity is suspected or detected on an existing policy, it will be immediately canceled and reported to the proper authorities.
- Failure to Update Insurance Information: Keeping your profile updated with accurate policy information is necessary in order for your insurance carrier to accurately assess risk and provide adequate compensation when needed.
- Missed or Delayed Renewal Deadline: Missing or delaying the renewal date of an existing policy can cause the coverage period to expire without warning.
Failing to maintain active coverage can result in expensive penalties or fines that must be paid in addition to any premiums due. Additionally, you may find yourself paying higher rates when attempting to obtain new coverage after it has lapsed. Taking proactive steps now by understanding ‘what happens when my insurance lapses?’ can help prepare you for any possible future instances.
Consequences of Insurance Lapse
When an insurance policy is allowed to lapse, the consequences can be serious both financially and legally. Lapsing an insurance policy can mean your coverage ends and you are no longer able to make a claim for any accident, injury, or property damage that occurs while the policy is not in force.
Financially, new coverage may become much more expensive after a lapse in insurance due to higher premiums. Insurance companies charge prospective customers higher premiums if they have other unfavorable factors on their record such as recent accidents or facing legal action due to an unpaid bill.
Legally, a lapse in insurance could lead to hefty fines and possible jail time depending on the state. The state minimum liability limits generally specify auto owners must carry liability coverage on their vehicle before operating it. This means that if you are found driving without adequate auto insurance coverage and have been involved in an accident or are pulled over by traffic police then you may be fined and/or arrested for this violation of the law.
Reinstatement of Insurance Policy
If you have a lapse in your insurance coverage, you may be able to reinstate your policy. This can depend on why the policy lapsed and for how long it has been inactive. When an insurance policy lapses, the insurer will typically terminate coverage unless it is reinstated within a given period of time. Reinstatement may not always be an option, since the insurer may no longer carry the policy or may not be willing to cover you after a lapse occurs.
The process of reinstatement varies from company to company; however, some general steps include:
- Paying all past-due premiums in full.
- Providing proof of coverage such as statements or policies that show when the previous coverage ended.
- Submitting any updated information that may be required such as changes in address or occupancy.
- Requesting a renewal or reactivation of your original policy with any additional modifications that you’d like to make (increased limits or endorsements).
If your insurer accepts your request for reinstatement, they are then likely to require that you pay an additional premium because of the gap in coverage. They will also typically apply these missed payments toward any remaining deductibles and possibly backdate the reinstated policy if deemed appropriate. Make sure to follow up with an agent for further information about this process if necessary, since many insurers will have different rules and requirements for reinstatement depending on state laws.
Financial Implications of an Insurance Lapse
Without insurance, you are responsible for the full cost of any medical treatments or prescriptions you may need. Depending on your plan and where you live, the total cost could be tens of thousands of dollars, financially devastating for most people in an already strained situation. In addition to these added expenses, there are also options that provide more expensive alternative treatments available through private companies that are not covered by some types of insurance.
Your insurance company can also pursue past due payments with collection agencies and credit reporting agencies, which will cause your credit score to drop significantly and any loan application to be denied until the debt is resolved. You may even be sued if your payments become delinquent enough or if you can’t find a way to make the payments on time.
When your premiums aren’t paid on time each month and insurance lapses, you could also face a lawsuit from any third parties who have suffered medical expenses as a result of an automobile accident or other related incident that involved you but wasn’t covered under your policy. Claims can include hospital bills or legal fees resulting from a trial if they weren’t able to recover damages from the insurer’s policy limits.
You may have difficulty finding affordable coverage in the future when insurance companies see that there have been lapses in coverage during your history before buying a new policy. Most insurers will check previous claims history and give you higher rates for each accident or lapse until the claim is cleared up through the proper channels.
Impact on Credit Score
A lapse in insurance coverage can have a significant impact on a consumer’s credit score. The impact of not paying for insurance coverage on time is not just related to the amount that was due but can result from nonpayment as well.
When an insurance policy lapses, the consumer may receive a negative report from the insurer to one or more of the major credit bureaus. An unpaid premium balance can sometimes be reported and will remain on your credit report for up to seven years and significantly lower your credit score. In some states, a lapse in coverage may also result in the suspension or revocation of your driver’s license.
It is possible to appeal any negative reports and avoid long-term damage to your credit score. This includes disputes regarding past-due accounts or incorrect reporting by the insurer. You should also contact each agency directly if you believe any incorrect information has been reported by an insurer as it is important that these items are resolved quickly and without further damage to your financial reputation. Additionally, you should actively manage all payment histories associated with insuring at least one vehicle or home so that a lapse in coverage does not cause long-lasting damage to a consumer’s financial profile:
- Dispute any negative reports.
- Contact the credit bureaus directly if incorrect information has been reported.
- Actively manage all payment histories.
How to Avoid an Insurance Lapse
It is important to understand what happens when your insurance policy lapses and how to avoid a lapse in coverage. A lapse in coverage happens when you miss one of the payment deadlines for your policy or your insurer decides not to renew the policy. In both cases, you will no longer be eligible for financial protection from your insurer and any claims filed during that period might be denied.
Fortunately, there are steps you can take to avoid a lapse in coverage:
- Make sure to review all of the details of your policy and keep track of renewal dates or money-due dates. You can usually enroll in automatic payments so that you don’t have to remember due dates or worry about missing any payments.
- Review any changes related to a new job or rental address with your insurance provider over the phone or online so that they have up-to-date information on file.
- If you suspect a policy renewal has gone wrong contact your insurer as soon as possible to find out why they canceled or refused to renew your policy and discuss how the situation can be resolved.
Conclusion
It is important to stay up to date on your insurance payments and understand the consequences of letting your policy lapse. Depending on your state and insurance company, you may be hit with several penalties if you don’t pay your premiums, such as:
- Higher premiums
- Possible judicial penalization
- A complete exclusion from certain offerings from other insurance companies.
If you fall behind on payments and let your policy lapse while you are still insured by the same carrier, there could be a timeframe when you can renew without being subject to higher rates. However, waiting too long might mean that a new rate will have to be established. If this happens, make sure that the new rate is fair so that paying for coverage is an investment worth making in case of an unexpected emergency or injury.
