A grace period is an amount of time your insurance company allows you to pay after your monthly premium is due (while keeping your coverage active).
What's a grace period?
Similar to a credit card bill, you have a bit of time (depending on your insurance company and policy type) after your monthly premium is due to pay off your outstanding balance.
This extra time is called a grace period.
Grace period, illustrated
Let’s say you have a grace period of two weeks on your policy. One day, there was suspicious activity on your credit card. All payments were frozen on the same day your premium payment was due to your insurer.
The next day, your upstairs neighbor left the faucet on which flooded your apartment and ruined a ton of stuff. You may have been too distracted to fix the issue with your credit card right away, so you fixed it after three days. Only then the payment to your insurance company went through.
Good news! You can still file a claim for the damages.
By the way, grace periods typically last anywhere from 24 hours to 30 days. You can find your allotted grace period in your insurance policy, usually on the declarations page, so make sure to double check!
What happens if you don’t pay your premium by the end of a grace period?
If you don’t make your monthly premium payment before the end of your grace period, you won’t be covered anymore.
No ifs, ands, or buts about it.
Your insurer has the right to cancel your coverage and doesn’t have to pay for any losses during this time.
Something to keep in mind is, if you have a history of not paying your insurance premium on time, it could potentially lead to having higher premiums later on. You’ll be viewed as a “risky investment” for other insurers.
Why do insurance companies have grace periods?
Insurance grace periods are actually regulated by state, because insurance is a public good.
Imagine how many people would be hung out to dry if they were a little bit late on paying their monthly premium!
So, if your insurer uses snail mail and your premium check gets delayed, you should be okay. Or, say there’s an issue at your bank and a payment didn’t go through when it was supposed to, you’ll have a little extra time to wire the money to your insurer.
We all know that unexpected stuff happens in life, which is why grace periods protect policyholders by giving them a bit of a buffer to pay their premium before their coverage ends.