What Customers Must Know Before Dropping Coverage

Lapsed coverage is a serious issue in the auto insurance industry with many individuals allowing their policies to lapse for reasons of financial hardship or simply because they don’t anticipate driving as much. Recently, it’s become the subject of legislation out of Kentucky that would reduce the number of times that an individual can allow their coverage to lapse from three to one.

The bill, sponsored by Democratic Rep. Keith Hall of Phelps, Kentucky, would revoke vehicle registration after just one occurrence. According to Insurance Journal, the bill cleared the state’s House Transportation Committee on Tuesday with a unanimous vote. It will now move to the full House for further consideration.

While it may or may not make it all the way through the Senate, it seems to have overwhelming support, and it serves as an important reminder of the potential harm that can come from allowing a policy to lapse.

Contrary to what some may believe, notes eSurance, allowing lapsed coverage to occur even one time instantly makes future coverage more expensive for the party in question.

“Car insurance companies consider the uncovered to be higher risk than those who diligently keep their policies in force,” the company explained. “And even a one-day lapse in coverage can lead to higher rates.”


The Most Common Reason For Lapsed Coverage

While it may seem like forgetting to pay the bill is the most common reason for lapsed coverage, Allstate notes that it’s actually a lifestyle change. “You might move abroad, decide to give bikes or public transportation a shot, or just can’t afford a car anymore. All very good reasons to let your car insurance lapse, to be sure, but none will exempt you from an increased rate in the future.”

Provided that one does not drive while uninsured and cause an accident, increased insurance rates are the only negative effect of such a lapse. Fortunately, the increased rates will disappear over time — again, providing there isn’t a reason to keep them in place.

Still, it could become more difficult to find a willing insurer, at least for an affordable price. Should you manage it, you can expect “significantly higher [rates] for at least the first 6 months of your policy,” eSurance adds.


Deciding To Skip Coverage

When deciding to skip coverage, get out your calculator and prepare to do some calculations. Only with adequate planning will you know whether it’s the right decision or not. Some questions to ask yourself:

  • How long can I foresee not needing an automobile?
  • What methods of transportation will I use instead of driving?
  • What will my savings be over time versus the amount I’ll need to pay should I need to repurchase a policy?

“It’s up to you to decide whether it’s cost effective to skip coverage when you know you won’t be driving,” eSurance states. “If you won’t be behind the wheel for a significant amount of time, it’s possible that your savings will outweigh any increase in rates down the road.”

If you do plan on driving — even a little bit — then it’s best to maintain (at minimum) liability insurance coverage. Operating a motor vehicle without it (or without a liability bond) is illegal in 49 of 50 states. (New Hampshire is the only exception.)

Deciding to “take your chances” and drive without insurance coverage can result in a wide range of punishments from large fines, license and registration suspension, vehicle impoundment, and (possibly) incarceration. All of these things factor in to determining future insurance rates and eligibility.

Furthermore, being involved in an accident without insurance protection can be harmful whether the accident is your fault or not. For example, say there’s an accident, and it’s the other party’s fault, but you’re driving without insurance. In several states, you won’t be allowed to seek reimbursement for any lost benefits or wages. You’ll also be unable to sue the at-fault driver for compensation over accident-related medical expenses.

Worse, if it is your fault, your wages could be levied or personal property could be liquidated, by law, because you’re responsible for the damages caused to the no-fault party one way or another.


In Summary

Lapsed coverage may not always be a bad idea, depending on one’s situation, but customers need to know what they’re facing should they voluntarily make that decision. It’s also important that they’re aware of pending legislation in their state that could make life tougher without a policy in place. By having all the facts in play, they can avoid the missteps before it becomes a bigger issue.

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