D. Gilson is a writer and author of essays, poetry, and scholarship that explore the relationship between popular culture, literature, sexuality, and memoir. His latest book is Jesus Freak, with Will Stockton, part of Bloomsbury’s 33 1/3 Series. His other books include I Will Say This Exactly One Time and Crush. His first chapbook, Catch & Release, won the 2012 Robin Becker Prize from Seve...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 19, 2021

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The downturn in the economy has led to dramatic impacts across the United States – from those who are out of work, to those who have decided that they simply can no longer afford their car insurance policies. So they cancel them. In most of these cases, they also stop driving and switch to public transportation, but some have simply been driving uninsured.

While the decision to not carry insurance might seem like an easy way to save money in the short term, we’d caution that the long term consequences heavily outweigh any short term benefit.

Here’s one reason why: Most car insurance companies will immediately consider anyone who has allowed an insurance policy to lapse, be that through non-payment of premiums or the cancellation of a policy while you still own and drive a car, a high risk to insure. Some will even place drivers into a higher risk bracket for a period of time simply for being late on payments, even if the insurer doesn’t cancel a policy for non-payment of premiums.

More importantly for some people, insurance companies will re-run your driving record. In most cases, insurance companies run your driving record when you first sign up to establish a set premium, but it costs them every time they have to do it. So they don’t unless you give them a reason, like failing to pay leading to a reinstatement fee.

Insurance companies have data to backup their placement of such drivers into higher risk brackets, as well. It isn’t simply a perception of an increased risk, but it is backed up with real statistical data. Individuals who let their insurance lapse are much more likely to be involved in an car crash and make a claim.

How Much Will It Cost You If You Let Your Policy Lapse?

“So what?” you might ask. “What’s going to happen?”

You’ll pay higher premiums, that’s what. On average, a driver who has allowed an insurance policy to lapse will end up paying 5.7% more for their insurance than they were before. That number will rise even higher if you’re insuring multiple cars – going up to around 12%. That’s if your insurer is willing to reinstate your policy once it has lapsed. You may have no alternative but to look to other insurance companies. Of course, this is an average meaning some companies may charge you even more.

While you may not have to go with another insurer, it may be the only way you can get coverage at a rate below or at least equal to what you had through your original insurer. In the end though, it is better not to let your insurance lapse, so you can avoid paying more or having to look for a new insurer.

Keep in mind, many insurers now ask how long you’ve been with your current insurer and if you’ve allowed your policy to lapse. So even if you switch companies, they may charge you more due to the higher risk of insuring you.

That’s not the worst that can happen, however. Insurers can cancel your policy for non-payment of premium, even if you didn’t intend to allow your policy to lapse. Not paying the bill on your auto policy is one of the most common reasons that insurance companies will cancel your policy. Even if they don’t cancel you outright, the insurer may issue a do not renew flag on your policy (this is called a DNR, for Do Not Renew) you’ll either have to convince your insurer to keep you or obtain a new insurance provider once your policy lapses.

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How Long Do You Have to Pay Your Auto Policy?

For continuous coverage, the best policy is to put your plan on auto pay or pay the premium as soon as you get the invoice. This isn’t always possible, though. If you need more time, the best thing you can do is talk to your insurance company and see if they have a grace period. Especially on active policies, this is more likely than you might think.

In times of widespread economic stress, insurers like other businesses may also offer specialized programs to prevent coverage lapse. Always check with your insurer to be sure.

Can You Cancel An Auto Insurance Policy?

Of course, you can cancel an auto insurance policy. Consumers do this every day, but not all of them understand the process. There are two reasons why you might want to consider canceling your car insurance policy:

  • You’ve decided to switch insurance companies, and you have another policy in place – yes, have your new policy in effect before you cancel the old one.
  • You’ve sold your car and informed the DMV and/or transferred the title of the car to the new owner.

Canceling a policy without either of those two happening will result in either an actual or perceived lapse in your insurance. This can lead to legal fines or penalties, depending upon your state, as all insurers are required to notify state department of motor vehicles of any policy lapse or cancelation. The state may also suspend your license.

If you continue to drive without insurance, legal fines may be the least of your worries, however. Drive without insurance, and if you’re involved in a crash, you’ll be looking at paying all costs directly out of pocket. If you’re at fault for such a crash, you could be on the hook for thousands of dollars due to the other driver. If your state has suspended your license due to lack of insurance, you could be facing additional charges.

In both traditional tort-system states and no-fault states, a court may order a judgement against you in regards to the collision. They may even order the sale of your assets, including your home and garnishment of all future wages to help pay the judgement. You could even get some jail time. All this will lead to a higher insurance rate in the future.

In the end, while allowing a policy to lapse may offer a short term financial gain, the potential long term costs simply make this untenable. If you cannot pay your policy premiums, work with your insurer to either lower your costs by eliminating extra coverages, raising your deductibles, or stop driving. Your wallet will thank you in the end. Keep in mind, more states have set up systems to track proof of insurance. So the best way is to just have insurance, even if it’s only state minimums for liability.

How Can You Get Affordable Rates on Insurance Payments?

Ideally, everyone would have full coverage to protect themselves. In reality, there are a lot of uninsured drivers who feel they can’t afford auto insurance. The truth is states require minimum liability coverage that’s often very affordable.

If you’re looking for auto insurance or to prevent a lapse in insurance coverage, enter your zip code in our quote calculator. If you answer a few questions, we can get you quotes on the coverage you’re looking for at an affordable price.