With the rise in the number of road accidents every year, and perhaps people somehow forgetting how to drive safely, the rates of auto insurance are rising at an equal pace. Now adding the rising prices of gas and bicycling 20-30 miles each day seems a better solution than paying a fortune in just commute expenses. A lot of factors affect your auto insurance rates.

Car insurance companies are very careful in carefully considering every risk factor associated with you as a driver. Your driving record, past insurance claims, accidents, etc are some factors that these companies consider to decide the rates of policies. But what many people are unaware of is how a lapse in your vehicle insurance coverage can increase the rates of your policy, and by a lot. 

In this article, we’ll look at all the things you need to know about insurance coverage lapse, what it means, how it affects your car insurance rates, and how to avoid it. But first, let’s understand why car insurance companies consider all the risk factors before deciding the rate of the policy. 

How Car Insurance Companies Operate

Have you ever wondered how a car insurance company can manage to pay hundreds of thousands of dollars for an insurance claim even though they just take a few hundred dollars in insurance premiums? This is because these companies are excellent risk-management companies. 

Car insurance companies need to have the number of people paying insurance premiums regularly without making a claim the highest, while the people who make an insurance claim the lowest. This means they can make more money while paying less in claims. This can only be achieved if the number of good drivers who are less likely to be in a car accident is the highest, while the number of people who are more likely to crash their car and make an insurance claim is the lowest. 

So insurance companies consider more than a dozen factors associated with your driving, financial condition (credit score), location, age, gender, etc to assess how likely you are to be in a car accident. This is applicable for all the coverages; liability, collision, comprehensive, personal injury protection plan, etc. But then how does an insurance coverage gap come into this? 

What is a Coverage Gap? 

Any period when you do not have an active auto insurance policy, even though you have a car registered to your name is called a coverage gap. Let’s say that you have a car along with all the important auto insurance coverages with it. But at the end of the policy period, due to some reasons, you did not renew the policy. Then after a month or so, you got all the coverage again. This one month will be considered your coverage gap period. 

There could be many reasons why you might have a coverage gap. You may have forgotten about the renewal date, or you might want to switch to a new policy and before the new policy gets activated, you have already canceled the previous one. This is one of the most common reasons why people get gaps in their coverage. 

There could be some serious reasons behind your car having no coverage. For example, you might have gotten in a car accident and due to some complications, your auto insurance company decided to drop you from the policy. Or perhaps you got a DUI charge or something that led to the car insurance company cutting all ties with you. 

How a Coverage Gap Affects Insurance Rates

Whatever the reason, auto insurance companies always consider the worst-case scenario for coverage gaps. Even if there’s no serious reason behind the coverage gap, i.e., you genuinely forgot to renew your policy, the insurance company will not consider it. All they assume is you are a high-risk driver and this increases the cost of auto insurance rates. 

Car insurance rates are already expensive. For example, getting cheap car insurance in Illinois is already very tough. And recently, State Farm announced yet another hike in the price of 3% for auto insurance policies due to increased labor costs and other charges. What this means for you is if you do not have the best driving record, and get a coverage gap, you can forget about getting cheap insurance rates anywhere.

Here’s why you should take coverage gaps seriously. According to some analyzes, if your car does not have an active auto insurance policy for less than 30-days or a month, you can expect to pay almost 10% more for the insurance premium than what you’re paying now. Gaps more than 30-days will automatically increase the price three times that, costing you around 30-40% more.

Apart from paying a lot more, there is a more dangerous risk of having a coverage gap. You should never drive without proper auto insurance coverage, especially liability coverage. Driving without proper liability coverage (and personal injury protection plan in 12 states) is illegal and can get you in prison. But more importantly, if you get in a car accident, you’ll be liable to pay for the entire cost of the accident, which could cost hundreds of thousands of dollars. 

There will be additional legal costs, and not to forget the cost of getting your car fixed and your injuries treated. Not only will you be in hot waters for legal issues, but you’d be in a financial mess as well. Never drive uninsured, at any cost. 

Avoid missing the renewal date of insurance policies and if you have missed it, talk to your insurer and get it fixed. Also, if you switch to another car insurance company, let your new policy be active first before you cancel the current one. This would help a lot of people from getting coverage gaps.