When the insured person stops paying his insurance premiums a policy will lapse and therefore discontinue to provide any cover. An insurance company usually allows a grace period during which the insured can still pay the premium. In car insurance the grace period is usually 15 days. If the insured want to continue with the insurance contract after it had lapsed, he will have to pay a re-instatement fee as well as the normal premium.

An insurance policy is therefore null and void when premiums are not made in time. The contract could also have lapsed for other reasons such as certain qualifying conditions not adhered to by the insured. The terms voluntary termination and discontinuance are also used to describe a lapsed policy.                                                

Insurance companies use the term “lapse rate” when they refer to the number of policies which have lapsed due to insured parties’ failure to make premium payments. The lapse rate is expressed as a ratio or percentage of the total number of policies in the books of the insurance company, at a specific time, such as the financial year-end or any other accounting period.

Allowing your car insurance to lapse is running a huge risk, especially if you have an outstanding balance on the car. You will be personally held liable for any damage, loss or third party claims during the time you are not covered.