While it may not seem fair, this is definitely a car insurance myth. Going without coverage for a certain amount of time, which varies by insurance company, will affect your car insurance rate in the future.
the truth is …
Whether you dropped car insurance coverage while backpacking in Patagonia or just forgot to pay your bill, a lapse in coverage is going to sting the next time you purchase a policy. Car insurance companies consider the uncovered to be higher risk than those who diligently keep their policies in force. And even a one-day lapse in coverage can lead to higher rates.
Let's take a look at the various coverage lapse situations and their ramifications.
the lifestyle change
One of the most common reasons for a lapse in car insurance coverage is simple 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.
Thankfully, increased insurance rates are the only negative effect of such a lapse — so long as you don't drive without insurance. And that increased rate will disappear over time (if you drive safely once you get behind the wheel again). Still, you may find it difficult to find someone willing to insure you, and when you do, your car insurance rates will be significantly higher for at least the first 6 months of your policy.
It's up to you to decide whether it's cost effective to skip coverage when you know you won't be driving. 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.
still driving, just without car insurance
Driving without at least liability insurance (or a liability bond) is illegal in every state but New Hampshire. But sometimes people feel driven by circumstances — usually economic hardship — to get behind the wheel without car insurance coverage. People make the choice in order to save, but that decision often leads to serious complications, many of which end up costing much more.
Depending on your state's laws, being pulled over without insurance can lead to big fines, suspension of your license and registration, impoundment of your vehicle, and even jail time. None of which will improve your future car insurance rates.
the uninsured lessee and the financed driver
If you're leasing or financing your automobile, you're beholden to more than the laws of your state — the holder of the lien on your car (or your lessor) also requires that you keep a valid car insurance policy at all times. If you allow your insurance to lapse, you'll have a short grace period to either re-up your old policy or find a new one. If you aren't able to do so, the holder of the lien (or lessor) will either repossess the car or go ahead and buy a policy for you at a steep price.
Take a close look at your lease contract or the terms of your loan to learn the consequences of going without insurance.
the consequences of being involved in an accident without insurance
A quick note on what happens if you're involved in an accident while you're uncovered. You won't be automatically considered at fault, but in many states, regardless of who is at fault, you won't be able to seek reimbursement for lost wages or benefits. You also lose the right to sue the at-fault driver for compensation to cover accident-related medical treatment.
If you are at fault, you're still responsible for damages to persons and/or property. If you can't afford to pay for damages out of pocket, you may be brought to court, where plaintiffs seek repayment through levying your wages or liquidating your personal property.
Whether you got a ticket or were involved in a collision, expect car insurance companies to consider you high risk for much longer than your uninsured counterparts who refrain from driving.
avoiding a gap in coverage
Keep track of your car insurance policy's end date and, if possible, set up automatic payments to avoid human error. If you're planning to switch car insurance companies, time your new policy's start date to coincide with your old policy's end date to make sure there's no lapse.
There's one more option to help you avoid a gap in coverage: auto liability or surety bonds. Instead of requiring that you buy insurance, many states will accept a large, lump sum payment to be held by the DMV or State Treasurer. In the event of a crash, this money is then dispersed to cover damages if you're at fault. It's not a popular option since your deposit must equal your state's minimum liability limits, but it's one to consider if you have the funds and would rather not deal with biannual or monthly payments.
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