A lapse in insurance is defined as a point in time when a policy has been canceled or terminated for failure to pay the premium, or when the policy contract is void for other reasons. The penalty for a lapse in auto insurance will vary depending on what state you reside and have your vehicle registered in. Typically, any gap in car insurance will cause the state to imposed a penalty on you.
For example, in New York State any amount of time that your vehicle is registered but not insured can cause a lapse in your insurance coverage and the suspension of your registration. NYS DMV lists several situations in which a lapse in insurance coverage can occur. One is if there is time between your insurance being cancelled and the effective date that you begin new insurance and thus do not have acceptable proof of continual auto insurance coverage. If the lapse is over 90 days a NY license would be suspended.
Many states, such as NY and Georgia, require insurance companies to notify the DMV electronically every time you obtain auto insurance and/or whenever your coverage has ended. Once this information has been received, if the DMV finds that there was a lapse in coverage generally they are the ones to send out the penalty notification to you.