Insurance is an essential tool for protecting your financial health and valuable property, but most policies require renewal or replacement at some point. This gives you the option of changing your coverage. But it also poses the possibility that your policy will terminate and leave you temporarily without coverage. In these cases you can expect to receive notice from your employer or an insurance company directly, giving you a chance to take action.
A gap in coverage letter from an insurance company is a document that informs a customer of an upcoming, or recently discovered, lapse in insurance coverage. A lapse occurs whenever an insurance customer's policy expires before the customer purchases a new policy or renews the existing policy. If you cancel your insurance with one company and buy a policy elsewhere, it does not constitute a lapse in coverage or a gap. A gap in coverage letter can pertain to any type of insurance policy, including auto, health and homeowners.
A gap in coverage letter may arrive before or after your coverage lapses. If it arrives beforehand it usually comes only after you have failed to renew your policy or submit a required payment. The gap in coverage letter may be your final warning before your policy expires, leaving you uninsured. The letter will include instructions on how to avoid a gap, such as submitting payment or contacting a sales agent.
A gap in coverage letter that arrives after your coverage lapses usually indicates a gap in your insurance coverage history, which your current insurer may not have known about when you purchased your existing policy. A gap in your insurance history may force you to pay higher rates or eliminate discounts you receive for continuous coverage. This form of gap in coverage letter will also include information about the impact of the gap, such as a balance due on your new policy rate.
In general, insurance companies do not need to notify customers of gaps in coverage. Some do so to promote their products or encourage customers to renew existing policies. Employers, on the other hand, must notify former employees of upcoming gaps in health insurance coverage if employer-sponsored health care is about to expire. This notification allows former employees to sign up for continuing coverage through COBRA or seek health insurance elsewhere before coverage lapses. If a state's insurance laws require insurers to provide notice of rate changes, a gap in coverage letter addressing a prior lapse serves this legal purpose.
Gap in coverage letters are important to insurance customers for a number of reasons. Insurance companies base their rates, in part, on a customer's insurance history. For example, a 25-year-old driver who has had her own auto insurance policy since age 18 will get a lower rate than a similar driver of the same age who was listed on her parents' auto insurance until age 21, then went without auto insurance for several years while living in a city and using public transportation.
Gaps in coverage also make it more difficult for customers to get affordable health insurance rates, since a history of coverage indicates access to doctors and reduces the chances of ongoing, untreated health problems. Finally, it's important to understand when you do or do not have coverage since trying to make an insurance claim during a gap will leave you responsible for the full cost of service.