What happens if your car insurance lapses?
Commercial auto insurance is one of the most important policies for small business owners who own and operate company vehicles. Even a short lapse in coverage could be an expensive hassle for both you and your small business.
What does a lapse in car insurance coverage mean?
In simple terms, a lapse in commercial auto insurance means your small business owns and operates company vehicles but doesn't have a current, active policy.
Maybe you had a policy and forgot to pay, or simply didn't realize that your personal auto policy wouldn't cover business operations. Regardless of why your auto policy lapsed, it's important to resolve the issue as quickly as possible to avoid a catastrophic (and expensive) incident.
Unfortunately, both the law and insurance companies don't take too kindly to lapses in coverage. Your best bet is to contact your auto insurance provider immediately to resolve the issue or reach out to a licensed insurance agent to start a new policy before getting back on the road.
Is there a grace period?
If your auto insurance policy lapses, typically due to a missed payment, most car insurance companies will give you a grace period to get back on track. The period of time to make up the payment without a lapse in coverage varies, but it's often 10 to 20 days.
If you remain uninsured after the grace period ends, it may be difficult to get a coverage reinstatement, your car insurance rates could increase, and you may have to get a new policy.
Is there a penalty for a lapse in auto insurance?
A lapse in coverage can carry massive penalties in all states where it's required (every state except Virginia and New Hampshire). You will be financially liable for all expenses and property damage should you or an employee get into a car accident without an active policy.
There are additional consequences just for not having active insurance if you're pulled over or otherwise caught without having an active policy.
The penalties for lapsed insurance vary by state, but some examples include:
- In Texas, if you're caught without having commercial auto insurance, you can receive a $175 citation, $250 annual surcharges for three years, and increased auto insurance premiums.
- For Californians, failing to have auto insurance can mean having the vehicle impounded, a fee of at least $350, and increased insurance rates.
- New York small business owners who operate vehicles without insurance may receive a $1,500 fine. If they are involved in an accident, they could face a vehicle registration and driver's license suspension for a minimum of one year.
Some state laws are even harsher, with fines of up to $5,000 or even jail time for the first offense.
How long does an insurance lapse stay on your record?
The consequences of a lapse in commercial auto insurance don't just go away when the policy is reinstated. Depending on your state, a lapse can stay on your driving record for up to five years.
If your auto insurance coverage lapses, it's likely that your premium rates will increase and it may even be harder to find coverage in the future. Auto insurance companies could see a previous coverage lapse and flag you as a high-risk driver.
What do I do if my car insurance policy lapses?
If your insurance lapses, the best thing you can do is act quickly. Here are some steps you should take to address a lapse:
Step 1: Contact your auto insurance provider. Ask what happened, when it lapsed, and what they'd suggest for getting it reinstated. See if you might possibly have to pay a late fee, a reinstatement fee, or higher premiums because of the lapse.
Step 2: Inquire about the grace period. See if you might be eligible to have your policy reinstated under the grace period so a lapse in coverage doesn't show up on your record. It might also be worth asking if there are any discounts or benefits you can add to your reinstated policy.
Step 3: Shop around. If your insurance company can't or won't reinstate you, look around at your different policy options and get insurance quotes before making a decision.
After getting your insurance back, it is strongly advised to set up automatic car insurance payments to prevent further non-payment issues.
With automatic payment, you won't have to worry about keeping track of payment due dates, and this could potentially save you (and your business) a lot of money and hassle.
Remember: You absolutely should not drive with a lapsed policy. An auto accident without insurance will only make things much worse.
Other important auto policies to consider
While commercial auto insurance is a must, there are other small business auto policies that may be a great fit for your business.
Hired and non-owned auto insurance
A hired and not-owned auto (HNOA) policy covers vehicles that are not directly owned by your company. This can include rented vehicles and your own personal vehicle that you use for business purposes.
Lease gap insurance
In the event that you are still paying on a leased or financed automobile, lease gap coverage can act as a supplemental policy that will cover your vehicle should it become stolen or irreparably damaged while you still owe on it.
Business auto policy
A business auto policy covers all vehicles, including those owned by the business and those that aren't, such as those owned by you, your employees, or subcontractors.
It tends to be a bit more expensive than standard commercial auto insurance, but it also provides a more robust level of coverage.
Protect your small business with a complete risk management plan
If your small business does any sort of transportation or uses vehicles in any capacity, you absolutely need some type of commercial auto insurance. However, that’s not the only insurance that you should consider.
There are a number of policies available to protect small businesses and their owners from the most common risks and liabilities, including:
General liability insurance: A great option for most small businesses, general liability insurance protects against legal costs if a customer gets injured, if you accidentally damage third-party property, or if someone takes your business to court for defamation or libel.
Business owner's policy: A business owner's policy (BOP) covers your business from general liability claims as well as the commercial property where you run your business.
Workers' compensation insurance: Most states require workers' compensation insurance if you have employees, as workers' comp protects them in the event of an injury or accident.
Professional liability insurance: If you work in an industry where you're selling your expertise, professional liability insurance will protect you from lawsuits claiming negligence, mistakes, or errors. Depending on the industry, professional liability insurance is also called errors and omissions (E&O) insurance or medical malpractice insurance.
Cyber insurance: If your business takes place online in whole or in part (and most businesses do these days), cyber insurance will protect your business in the event of a data breach or software attack.
Commercial umbrella insurance: Commercial umbrella insurance is an additional policy that adds an extra layer of protection beyond the standard general liability, workers' compensation, and auto insurance policies in the event of an exceptionally expensive lawsuit.
How do I find the right commercial auto insurance?
It's easy to get commercial auto insurance with Insureon. Fill out our easy online application to receive quotes from trusted providers.
Our expert insurance agents are available to help answer any questions about policy limits, exclusions, and coverage options to help you find the best car insurance quotes for your company. Most businesses can get same-day coverage and easily download a certificate of insurance as proof of coverage right away.
Kate Sortino, Content Specialist
Kate is passionate about all things related to content, marketing, and SEO. She enjoys taking complicated topics and making them delightfully readable. Kate has a background in software content marketing and has professionally written about many topics, including finance, SEO, and mental health. Before becoming a full-time writer, Kate worked in social services and healthcare. When Kate’s not sitting in front of a computer, she’s typically exploring the outdoors with her husband and puppy.
