I’ve had clients who’ve experienced a lapse in coverage on their car insurance policy. The reasons include job loss, an unexpected expense like a car repair, forgetting about a bill, juggling the outflow with the income, and even a medical problem. Most recently I had a Dallas client who experienced a stroke. He was unable to drive and medical bills are such that paying for car insurance isn’t feasible. I understood and helped him cancel the policy. But I also talked with his adult child to explain what would happen should he be cleared for work and driving again.
All insurance companies do not like seeing a lapse in coverage. The concern typically boils down into two different perspectives:
- The client is a financial risk – not all the premium will be collected before the end of the term or their credit is poor.
- The client is a claims risk – a person with a lapse in coverage is more likely to file a claim.
Regardless of which category of risk applies to a specific person with a lapse in coverage, one thing is always true. A person who has a lapse in coverage will pay more for their car insurance than a person who’s not had a lapse in coverage. The increased amount varies by insurance company and there really is no set percentage I’ve been able to confirm. In my experience, the increase in premium appears to be in the 10% to 30% range.
What options does a person have when a financially troubled time appears? Here are a few suggestions:
- Lower limits: See if lowering your liability limits will provide the needed savings.
- Reduce coverage: Consider carrying liability coverage if the vehicle is paid off. Texas requires only liability, not uninsured motorist coverage.
- Raise deductibles: If you’re carrying a $500 deductible, a $1,000 deductible may provide the needed break.
- Comparison shop: Take a look at other insurance companies. I quoted a person who’d been with the same carrier for several years and we cut her car insurance premium in half.
- Park the car: If you’re in a position to park the car, either because you can’t drive, don’t need to drive, or have access to good public transportation, park the car and change the policy to comprehensive coverage only. No accident would be covered if you cheat and drive the car but it would keep coverage in place until you resume liability coverage too.
- Payment date: One of the things I talk with clients about is thinking about setting up future payments based on when most of their bills are due during the month. If the rent / mortgage and car payment are due at the first of the month, then maybe the insurance should be due around the middle of the month. Make your bills work with your cash flow.
These suggestions may or not be helpful depending on the depth of the financial hurdle being faced, but they may keep coverage in place. That could prove helpful when you find yourself on the other side of it and keep you from having to pay more than you should. Have a question, comment or suggestion? Post them in the comments section of our blog or on our Facebook or Google + pages. We’ll all learn something that may help prevent a lapse in coverage.