When your own personal finances are not what you’d like them to be, you might be tempted to skip paying for car insurance. After all, you’re not planning to have a crash, are you? As it turns out, that might be a costly decision over the long haul. According to Insurance.com, if you let your car insurance policy lapse, you will likely face higher rates when you go to pick up insurance again, as you certainly will -- unless you’re planning to quit driving.
Drivers who let their most recent auto insurance coverage lapse before purchasing a new policy paid an average of 5.7 percent more for annual coverage than drivers who maintained continuous coverage, according to an examination of 184,000 car insurance policies sold through Insurance.com in 2009 and 2010. All drivers who had no policy lapse paid, on average, $1,405 annually for their car insurance. On the other hand, drivers who had let their policies lapse paid $1,485.
Insurers begin charging higher rates with policies that lapse by as little as one day, according to the Insurance.com data, and the penalty is even greater when a policy covers multiple cars. Drivers insuring a single vehicle whose previous policy had lapsed paid 8.8 percent more in average annual premium costs than drivers who maintained continuous coverage for one vehicle. Drivers insuring two or more vehicles whose previous policy had lapsed paid 12 percent more in average annual premium costs than drivers who maintained continuous coverage for two or more vehicles.
Are the higher rates simply punishment? No, the study found. One rationale for the higher rates is research showing that drivers with a history of letting their policies lapse are more likely to get into accidents. Each insurance company has its own formula for determining how high rates go after a policy lapses and how long the penalty will remain in place.
“Dropping auto insurance to save a few bucks in the short run can be very costly over the long run,” says Chris Kissell, managing editor of Insurance.com. “It’s the very essence of ‘Penny wise, pound foolish.’”
