Car insurance penalties can really mount up if you have insufficient car insurance. They are serious and can have quite an impact if you're not carrying adequate insurance.
Most states have state minimum requirements that guarantee you'll have ample coverage in case you have a collision with another vehicle. That state-mandated minimum will cover your liability to the other driver, their passengers and their vehicle, as well as any injuries you or your passengers may sustain. Collision insurance covers your vehicle, and more specifically, the bank that lent you the money for your car, if you have a loan. Your bank will have adequate coverage specified in the terms of their loan contract. That protects them and keeps them covered in case you wreck their vehicle. After you've repaid your loan, you'll no longer have to carry collision insurance if you don't feel the need.
Having your liability insurance too low can have drastic consequences. If you're sued by another driver and their passengers, you could face crippling debt from which you may never recover, short of filing for bankruptcy. Furthermore, your paychecks could be garnished, meaning a percentage of your pay would be automatically sent to the other party's attorney to disburse to their client. You know if an attorney is involved, it's going to cost extra.
If you forget to pay your premium, be it monthly or yearly, your insurance will expire or lapse. Lapsed insurance is no joke. If your insurance lapses, your operator's license will be revoked by your state of residence. That means if you get stopped while driving, you'll go to jail and be forced to post bond. Bondsmen are nearly as expensive as lawyers. Jail is no fun, so avoid it at all costs.
If your insurance lapses, another consequence is your insurance company might refuse to insure you; or, if they do, they might place you in a higher risk category than your driving record would suggest. If you go into a higher risk pool, you'll pay far more than you had been paying before permitting your insurance to lapse.
Car insurance penalties for carrying insufficient insurance are severe. They can be mitigated by buying as much coverage as you can afford; don't just buy state minimum. While it might seem to be all you can afford, it may actually be that you can't afford to not carry enough liability insurance. A lapse or accident can have consequences far worse than being temporarily short of cash. You could end up mired in debt or bankrupted, when it never had to happen at all.