Is There a Difference Between Lapsed and Cancelled Auto Insurance?

Lapsed

Lapsed auto insurance is the termination of the policy before its expiration date because the policyholder stops paying the premiums. Following the due date, your insurer will send you a notifying you of a grace period during which you can bring the premiums current to continue. This period is typically 15 days long. If you fail to pay the premium, your coverage will lapse.

Cancelled

Cancelled auto insurance is the voluntary termination of the policy by either the policyholder or the insurance company, before its expiration date. The two most common causes for an insurer to cancel a policy is for misrepresentation--if you gave false information to obtain the policy, or breach of contract--if you do not abide with the terms of the insurance policy. Policyholders most commonly cancel their policies to switch to another insurance carrier.

Gaps

A key distinction between lapsed and cancelled insurance is that lapsed insurance will typically result in a gap in insurance coverage, while cancelled insurance does not automatically cause this gap. For example, if you cancel your current auto policy after switching to another carrier, there will be no gap in your coverage. However, if there is a period of time between the date your insurance was cancelled and the effective date of your new insurance, then you will have a gap in insurance coverage. This distinction is important in determining whether or not penalties that are imposed for a lapse or cancellation

Penalties

A lapse in insurance coverage will result in penalties such as an increase in your rates, regardless of the reason for the lapse. On the other hand, there are only penalties for cancelled insurance if the cancellation results in a gap in your insurance coverage. In either case, the penalties derive from the requirement that you must maintain continuous coverage on your vehicles; any gap in insurance coverage will be penalized. Other penalties include a suspension of your license and/or vehicle registration, depending on the state in which you live.

Reinstatement

A lapsed policy can be reinstated if you bring your premium payments current. A cancelled policy, on the other hand, cannot be reinstated. To get back insurance coverage after cancellation, a new insurance policy will have to be written and issued, even if it is with the same insurer. It is worth noting that lapsed coverage is only reinstated from the date and time that the payment was made. The coverage cannot be backdated, so you will have a gap (lapse) in your insurance.