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A little lapse in my insurance coverage can’t hurt, can it?

January 31, 2014

Sora Garlasco, Commercial Lines Account Manager

Sometimes it’s good to take a break.

It’s time to take a break from Candy Crush when you begin mentally rearranging people’s facial features. (Line up the nose with the eyes, three across…match!)

It’s time to take a break from binge watching Restaurant Impossible when you start acting like Robert Irvine in your own kitchen. (“This tastes like dog food…how could you serve me this?!?”)

Vacations, changes of scenery, getting away from the same old boring routine…these are all good, healthy, life-affirming breaks. However, there are some things you need working for you behind the scenes 24/7/365, perhaps none more so than your Home, Auto, Life or Business insurance policies.

Letting insurance lapse is a huge risk, and unlike, say, skydiving, there’s no reward and enjoyment mixed in with that risk, only headaches and the inevitable cost increases that will come with reinstating coverage.

What causes a lapse in your insurance coverage? In this case, it’s what you don’t do that counts. Don’t pay your premiums and you could get penalized financially through fees, a loss in preferred status, or worse, dropped. Why? Letting your coverage lapse gives a carrier the impression your finances are about as stable as Patsy and Edina after a trip to wine country.

Status is good. Preferred status is even better. In the case of insurance, status will often earn you a continuous coverage discount. Let your policy lapse for 30 days, however, and suddenly you have a new kind of status: Non-preferred status. (Has quite a ring, doesn’t it? You can actually feel the carrier holding its figurative nose.)

Non-preferred status is not only unpleasant sounding, it’s expensive. Insurance carriers dislike paperwork just as much as you do, and a break in coverage means lots of it for the carrier. Trust us when we say Murphy’s Law typically kicks in at this point:  No insurance?  Something is going to happen.  We see it all the time.

Play the “let’s let the insurance lapse” game too many times or for too long and suddenly there is no more policy to reinstate. After a period of inactivation, your carrier may treat you like a banana peel and toss you away forever. Now you’re on the hunt for a new carrier and one thing carriers don’t like is undercharging for risk.  AnyRisk Insurance Crossword guesses on whether that will be cheaper? (Hint, the answer is not yes.)

You can be sure there will be corresponding fees built in upfront should they choose to write you a policy. You see, at this point what we call a Standard Carrier in the insurance world won’t take you on – the risk is too high.  Remember this is insurance – it is all about risk aversion.  Will we be able to find you insurance if you let it lapse?  Yes, but it will be with a non-preferred, non-standard carrier or and “Excess & Surplus” lines carrier.  Get out your check book.

So what’s the worst that can happen if you let your business, auto, life, or home insurance policy lapse?

Auto insurance: For one thing, it’s illegal in Connecticut to  drive a car without insurance. Outlaw status aside, let’s say you’re cruising along and your phone dings with a status update from one of the cats you follow on Twitter. Distracted, you cause an accident that destroys your car and someone else’s. You are now on the hook for damages out of your own pocket. Grumpy cat you will be.

Life insurance: “I don’t plan on dying in February,” you tell yourself. “I’ll wait a month and pick the coverage up again in March.” Turns out February is a pretty popular month for dying. Now your family is left with a stack of bills and no income stream from your policy to help cover them.

Home insurance: As with life and auto insurance, you run the risk of catastrophe striking during your insurance “down time.” But there’s a twist if you carry a mortgage. Get Pig-Pen sloppy with home coverage and your lender will pick up your slack, forcing coverage of its choosing on you and billing you for the privilege. Like Bruce Banner when he starts to get a little ticked off, this is coverage you don’t want to see. Hugely expensive with bare bones protections and no coverage for your home’s contents or your personal liability, this forced lender coverage only protects what they have an interest in, which is the home itself.

Business Insurance:  You’ve worked hard to grow your company, one small law suit can bring it crumbling down in hours.  No insurance – No coverage.  Say good bye to your years of hard work

In short, there are a lot more rewarding ways to take risks then to let your insurance coverage lapse. Like extreme skiing.

TIP:

Just like with your car and real estate taxes, failure to receive a bill does not remove the responsibility of paying your premiums. Add your premium due dates to your electronic calendar and PLAN for the expense!

Sora Garlasco

sgarlasco@foundersgrp.com

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