What is a Lapse in Insurance Coverage?
Individuals and companies buy insurance for many reasons, but protection against financial loss is chief among them. While one hopes that they never need to invoke the terms of an insurance policy, it is nonetheless a hedge of protection that nobody should live without. However, an insurance policy is only as effective as the timeliness of the premiums that are paid. What is a lapse in Insurance Coverage?
When insurance coverage lapses, there are ramifications. Continue reading to learn what a lapse in coverage is and what the ramifications of such an event are.
No matter what type of policy one is referring to, a lapse in coverage occurs when a policy ends and there is no amount of new coverage put in its place. In such a case, you are essentially without insurance. This can apply to all types of insurance such as car, health, renters, boat, homeowners insurance and more.
There are four main reasons why insurance coverage may lapse. These are summarized below.
- Missed payment – Most insurance policies come with a premium that is to be paid on a certain schedule. If you miss a payment, the terms of the coverage may become null and void. This results in a lapse in coverage until it is taken care of.
- Late payment – Premiums do need to be received by their due date. To avoid being late, it is best to set up automatic and electronic payments.
- Non-renewal of the policy – Policies typically have a term attached to them. This is usually one year. Each year, the policy will need to be renewed or there will be a lapse in coverage.
- The policy was canceled – Insurance providers will occasionally cancel a policy for a variety of reasons, such as too many claims being filed within a certain period of time. Until new coverage can be obtained, there will be a lapse in coverage.
Lapses in coverage can often be taken care of rather quickly, but it is important to understand that the matter is serious. Mistakes happen, but the key is to rectify a lapse in coverage as soon as possible so that the proper insurance policy remains in effect at all times.