Written By: Shuman RoyReviewed By: Joel OhmanUPDATED: Jun 28, 2022Fact Checked

Okay, so you’ve missed your insurance payment and you coverage has lapsed. Yeah, that’s right; insurance is a no-pay, no-play game. If you don’t make a timely payment within the “grace period,” your coverage stops.

If we’re talking about your car insurance, pull over. Don’t risk driving uninsured. The consequences can be dire. Try to imagine replacing your car, the person’s car you hit, and paying their medical bills out of your own pocket.

Not only will you have to call your auto insurance provider to attempt to get your coverage reinstated, you’ll also be signing some paperwork…specifically, a statement of no loss.

You may be wondering what the document is and why it is necessary.

Simply put, the statement of no loss is a document that attests to the fact that you did not have any losses (either liability or property damage) occur while your coverage lapsed.

It’s a letter that states you haven’t done any current losses or damages that could lead to claims. Your insurer will need this statement before they reinstate or issue your policy.

(Is it bad to let insurance coverage lapse?)

Not only that, but it also demonstrates that no “situation” occurred during the lapse in coverage that may lead to a liability or property damage claim.

The million-dollar question; why does the insurer care if I had a loss when there was no coverage in place?

Good question. The answer lies in what a reinstatement of your policy actually does for you and why the statement of no loss is necessary.

Why a statement of no loss?

It is easier and less expensive for both you and your insurer to reinstate an existing policy than it is to completely re-write a new policy. The re-write requires starting the whole policy process from scratch. This means a new quote, new signatures, a new down payment and more paperwork…all of which costs more money for you and your insurer.

Your insurer would prefer to simply collect the overdue payment, reinstate the policy and move on. If this occurs, you may not be subject to higher insurance premiums in the future (as a result of being a less attractive client to the insurance companies).

However, an insurance company would be NUTS to reinstate your policy without asking for proof you did not have a loss. You see, some unscrupulous individuals will let a policy expire…then try to get the policy reinstated because they had a loss and don’t want to suffer the financial consequences.

We know…gasp…right?

There are two situations when insurance companies may ask for a no loss statement. For example, if your policy lapsed or was cancelled but is being reinstated. Instead of requiring a new application, a new policy and new effective date, the insurance company may ask you to confirm that you haven’t experienced any losses during the lapse period. The second option is when you applied for coverage right before a widespread disaster happened. If the company went into a moratorium before issuing the policy, you will be asked to make a no loss statement once it’s lifted.

Insurance companies have seen it all. The insurance industry is too big of a target by criminals to NOT force us to sign a document that states this sort of thing didn’t happen.

You sign the document, then if an insurance claim is filed and it’s determined the loss happened during the period for which the statement was valid, you can forget receiving any money from the insurer.

A no loss statement reduces the risk of insurance fraud, because if these statements didn’t exist people would only buy insurance right after they experienced a loss.

You may actually end up in court for insurance fraud!

Insurance providers would not want to reinstate your policy if you were planning on asking them to pay for expenses during the lapse, so they usually require the statement of no known loss to protect themselves from potential claims.

Read more: Top 10 car insurance myths.

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Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Written by Shuman Roy
Content Writer & Entrepreneur Shuman Roy

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman