Consequences Of Letting Your Auto Insurance Lapse

4 June 2015
 Categories: Insurance, Blog


In most states, the law requires you to carry bodily injury and property damage liability auto insurance coverage. The insurance covers another person's medical costs and pays for damages to that person's vehicle or property if you are at fault for a motor vehicle accident. Therefore, if you cause an accident and your auto insurance policy has lapsed, you'll be facing legal and financial consequences.

Legal Penalties

Although it's illegal to drive without insurance, state laws relating to auto insurance vary. Depending on where you live, your insurance company may be required to notify the Bureau of Motor Vehicles that you dropped your insurance coverage. In some cases, a lapse of insurance coverage is noted on your driving record, which could lead to your license and/or registration being suspended. The penalty for being uninsured in some states also includes seizure of your vehicle or charging you with a misdemeanor.

Financial Consequences

1. Being Sued

In addition to fees and fines you may owe for driving without insurance, if you get sued following an accident and the court awards the injured driver or passengers damages, you could end up in deep financial trouble. Without insurance, you may be responsible for paying a substantial amount of money out of your own pocket. If a judgment is entered against you, the suing party can come after any assets you have.

2. Paying a Higher Insurance Rate

Another financial consequence of letting your auto insurance lapse is paying an increased rate when you take out a new policy. If an insurer considers you high risk for dropping your insurance, it may even reject giving you a policy. It won't matter that you've had insurance with that company before. Even if the insurance company doesn't charge you a higher premium, you may lose discounts you earned previously. That alone will increase how much you pay for auto insurance.

3. Lowering Your Credit Score

A consequence you may not think about is the effect on your credit. Your insurer may list lapsed auto insurance as a negative entry on your credit report, which will lower your credit score. Besides the insurance company thinking you aren't a responsible driver, other creditors may consider you a higher risk since a lapse in auto insurance can make you look financially irresponsible.

Loss of Other Coverage

Besides losing liability coverage when you let your auto insurance lapse, you will lose your personal injury protection. If you live in a no-fault insurance state, this is the coverage that pays the medical expenses for injuries you suffer in an accident, in addition to lost wages. You also won't have coverage for family members or other passengers riding in your vehicle.