September 26, 2023


7 Steps to Understanding Car Insurance Lapses

It's a tough time for the consumer. We all know how much car insurance has risen recently - over 17% in the past year.1 The insurance companies are not making money, so they pass along the costs to the customers to stay in business. And this is on top of rising inflation. We did a deep dive here if you'd like more information on this. 

We also know from our data that the second most common reason for higher insurance rates for OCHO customers is an inconsistent car insurance payment history. This can be from missed payments that create a gap in your insurance history and can make you a greater risk to the company. 

Because it is such a defining factor of your insurance rate, we came up with this definitive guide on gaps in insurance to help you get cheaper insurance in the future and keep your money in your pocket - not in the hands of the insurance companies. 

1. What is a Lapse in Insurance Coverage?

A lapse in insurance coverage is when a vehicle is registered but not insured for a specific time. It happens when you don't pay for insurance, cancel it, or forget to renew it. When an insurance gap occurs, your vehicle and other drivers are left without protection in case of an accident, increasing the risk for everyone involved.

Why is a Lapse in Car Insurance Bad?

When your vehicle is uninsured, you face several potential consequences. Firstly, driving without insurance is illegal in most states and can result in hefty fines, license suspensions, and even imprisonment.2

Secondly, being involved in an accident without insurance means you will be personally responsible for covering all damages and medical expenses, which can be a financial nightmare. One in eight drivers are uninsured in the US.3

The injured party can seek wage garnishments. This means a court orders the defendant's employer to deduct a set amount from their paycheck and send it directly to the judgment recipient.

"Under Title III, the amount that an employer can take from an employee in any workweek or pay period is the lesser of:

Additionally, a lapse in insurance coverage can lead to higher insurance rates in the future, as insurance companies may view you as a high-risk driver. When people drive without insurance, everyone's costs go up. For example, in hit-and-run accidents, someone has to pay for medical bills and car damage, which causes rates to go up for everyone.

2. What is a Grace Period?

A grace period is when you miss a payment, or your policy expires when you can renew your insurance without extra charges. It's like a second chance to fix any issues with your policy before it gets canceled.

Benefits of a Grace Period

Having a grace period helps policyholders in many ways. It's like a safety net if you miss a payment because of unexpected events or money problems. During this time, you can catch up on payments or fix any issues with your insurance to keep your coverage. 

To use the grace period effectively, act quickly and talk to your insurance company about your situation. By doing this, you can avoid losing your coverage and facing legal or financial troubles.

Grace period lengths vary depending on the insurance company and your state. Most are around ten days, ten being the state minimum. Most insurers don't want to give you a day extra to make your payment.

You can be charged up to $15 daily until your payment goes through.5

What happens if I cannot make my payment on time? Does OCHO give me any flexibility?

The current payment structure of the insurance industry is incredibly rigid. This question brings up a big problem in the insurance industry in serving people and families that live paycheck to paycheck, which is most of the United States of America. 

Most people need more time to make their payments. Unfortunately, the auto insurance industry mostly only gives consumers ten days to catch up on a late payment. Why ten days? Ten days is what most states require as a minimum grace period.

At OCHO, most of our customers want to stay insured and avoid cancellation but may need just a bit of time for their next paycheck or some other source of money to make their payment.  

We are working with our customers to help them make payments. If you're an OCHO customer, contact our customer service team, and we will assist you!

3. Risks of Driving Without Insurance

Is Driving Without Insurance Illegal? 

Driving without insurance is a serious offense that can have severe legal complications. "Carrying auto insurance is a legal requirement in 48 states. How much you need, however, can vary, as each state has different levels of state minimum coverage." 6

 If you are caught driving without insurance, you may face fines, license suspensions, and even vehicle impoundment. Moreover, some states may require you to file an SR-22 form, a certificate of financial responsibility proving you have the necessary insurance coverage.

Financial Consequences of Driving Without Insurance

Apart from the legal penalties, driving without insurance can have significant financial consequences. In the event of an accident, you will be personally responsible for covering all damages, medical expenses, and legal fees. These costs can quickly strain your finances, potentially leading to bankruptcy or other financial hardships.

Risks to Personal and Financial Well-being

Not having insurance coverage puts your finances at risk, your well-being, and that of your passengers. In the unfortunate event of an accident, you may not have access to necessary medical treatment or compensation. This can impact your physical health, emotional well-being, and overall quality of life.

4. How to Avoid a Lapse in Insurance Coverage

Pay Premiums on Time

One of the most effective ways to avoid a lapse in insurance coverage is by paying your premiums on time. Set up reminders or automatic payments to ensure you never miss a payment. By being proactive with your payments, you can maintain continuous coverage and avoid disruptions in your insurance policy. 

With OCHO, you can even align your insurance payments with your salary cycle to help make sure you don't miss a payment. 

Renewing Your Policy on Time

Renewing your insurance policy before it expires is essential in preventing a lapse in coverage. Stay informed about your policy's expiration date and make arrangements to renew it beforehand to ensure you have uninterrupted coverage and avoid legal or financial consequences.

Exploring Payment Options

If you are facing financial difficulties and cannot fully pay your insurance premiums, consider exploring alternative payment options. Some insurance companies offer flexible payment plans or discounts for upfront payments. Contact your insurance provider to discuss your options and find a solution that works for your financial situation. If you are an OCHO customer, don't hesitate to contact your customer support team to see what flexible options are available. 

Keep in Touch with Your Insurance Provider

Open communication with your insurance provider is vital in avoiding a lapse in coverage. If you anticipate any issues with payment or renewal, reach out to your insurance company and explain your situation. They may be able to offer assistance or provide guidance on how to maintain continuous coverage.

Exploring Other Insurance Options

Consider exploring alternative insurance options in situations where traditional insurance coverage may not be feasible, such as temporary periods of non-ownership or non-use of a vehicle. Non-owner car insurance policies, for example, provide liability coverage for individuals who do not own a car but still require insurance for occasional driving.

5. Reinstating Your Insurance Coverage

If your insurance coverage has lapsed, it may be possible to reinstate your policy. Contact your insurance provider immediately to discuss the steps for reinstatement. Depending on the circumstances and the lapse duration, you may need to pay any outstanding premiums, late fees, or penalties. Your insurance provider will guide you through the reinstatement process and ensure that your coverage is restored.

Things to Think About When Reinstating Coverage

When reinstating your insurance coverage, remember two things:

6. The Importance of Continuous Insurance Coverage

Maintaining continuous insurance coverage offers several benefits:

  1. It ensures that you are legally compliant and protected in the event of an accident or damage to your vehicle. 
  2. Continuous coverage demonstrates responsible financial behavior to insurance companies and may lead to lower premium rates and potential discounts in the future. 
  3. Lastly, knowing that you are adequately protected against unforeseen circumstances provides peace of mind.

Insurance companies look at how long you've been with them and if you pay on time to decide your rates. If you stick with one company and pay your bills on time, you can get discounts and lower rates. 


 7. Exploring Insurance Options After a Lapse

If your current insurance provider cannot reinstate your coverage after a lapse, you will need to find a new one. 

Start by researching reputable insurance companies and obtaining quotes from multiple providers to compare rates and coverage options. Look for insurers specializing in high-risk drivers or those who have experienced a lapse in coverage. 

Understanding Minimum Coverage Requirements

When selecting a new insurance policy, familiarize yourself with your state's minimum coverage requirements. Each state has different regulations regarding the minimum liability coverage drivers must carry. Ensure that your chosen policy meets or exceeds these requirements to avoid legal penalties.

The Role of Insurance Agents and Brokers

Insurance agents and brokers can be beneficial when you need insurance after a lapse. They know much about insurance and can find the right one for you. It would help if you thought about talking to an insurance expert who can help you step by step and give you good advice.

Working with these professionals has some benefits. They can explain tricky insurance words and policies, suggest what's best for you, and help with the paperwork. If you ever have problems with your insurance, they can also speak up for you to make sure you get the help you should.

At OCHO, we're always here for you. You can reach out to us during business hours, Monday to Sunday, from 8 a.m. to 9 p.m. CST, or by email outside of those hours, and we'll get back to you first thing the following day.

The Bottom Line

Not having insurance for your car can lead to big problems, like breaking the law and causing accidents. To avoid this, you should know the risks, use any grace period wisely, and avoid letting your insurance lapse. Insurance isn't just a legal requirement; it's a way to keep your money safe and secure while driving. Be in control of your insurance, be prepared for tough times, and enjoy the benefits of being a responsible and safe driver.