Allowing your automobile insurance to lapse can leave you embroiled in a web of financial obligations. If you cause an accident, you will have no insurance to pay for the other driver's injuries or property damage and no insurance to pay for your own automobile damage. You also will have no coverage for your medical expenses and expenses incurred by your passengers. Automobile insurance costs money, but failure to carry insurance can cost more than you have.
Notice From Insurer
Your insurer notifies you that your insurance will lapse unless you make a premium payment. Some policies offer a grace period up to 10 days before the company cancels the policy. Don't rely on the grace period to make your insurance payment. You may receive notice from your insurer that it is canceling your policy for nonpayment or, in some cases, you may receive no other notice.
If you carry comprehensive and collision, your vehicle is covered well. Comprehensive covers your vehicle against falling objects, theft, vandalism and fire, among other perils. Collision covers damage to your car, even if you are at fault. If you owe money on your car, most financing agreements usually require that you carry comprehensive and collision insurance. If you allow your insurance to lapse, the finance company will receive notice as a lien holder, and you will likely be in violation of the terms of your agreement.
Tickets and Fines
Proof of insurance is important. If you are stopped by a police officer or have an automobile accident and do not have an insurance card or proof of financial responsibility, you could receive a ticket in some states. You may contest the ticket, but if you acknowledge that you had no insurance at the time or have no proof, you will likely incur a fine. The cost of the ticket depends on your state law. For example, a first offense in Texas is $175 to $350, in 2011. A second offense is $350 to $1,000, in 2011. Your license may be suspended and your vehicle impounded on the second or subsequent offenses. You may have to show proof of insurance before the state highway department clears your name. You will likely have a violation on your record with the state. Some states issue points and the driver loses a license with a number of points.
If you have an accident that is your fault and someone is injured or killed, the driver or the estate may sue you. Also, if the other driver's insurer pays its policyholder for the damages that you owe, the insurer will likely sue you to recover its losses. Even if you cannot pay the money up front, you will still owe it, which means that you might face many years of debt that could have been covered by insurance.