What Is an Insurance Grace Period?

Definition and Example of an Insurance Grace Period

An insurance grace period is the amount of time after your payment due date that your insurance company will allow for the premium to be received while still maintaining your coverage. Your insurance carrier could assess penalties or cancel your coverage if you don't pay by the end of the grace period.

Grace periods vary, depending on insurance type and company. Not all insurance companies have grace periods. Your policy will define whether there's a grace period, how long the period is, what penalties come with it, and whether a claim will be paid if payment is received within that period of time.

Insurance grace periods vary by state as well as by company. Some states require no grace period at all. They allow the insurance company to cancel your coverage if you don't pay by the due date.

Ask your insurance agent or contact the office of your state's insurance commissioner to determine the specifics for your type of policy.

How Does an Insurance Grace Period Work?

The grace period serves as extra time for you to pay your premium, if your insurance company offers one. You'll usually continue to be covered for the whole grace period until you pay your premium.

Your coverage will be canceled if you fail to pay your premium by the end of the grace period, which could be as short as 24 hours or as long as 30 days. There's not a standard grace period offered by all insurance carriers. It varies by policy and by state.

Companies may offer a single, set grace period with standard penalties that apply to everyone. They may also offer a short grace period with no late fee and an extended grace period that includes a late fee.

Grace periods ensure that your coverage remains intact even if you pay late, so you can still file a claim should the need arise. Your insurance provider can cancel your policy as soon as the payment is late if you don't have a grace period or if you miss the deadline. You wouldn't be covered for a claim, even if your payment arrived the next day.

Types of Insurance Grace Periods

You may be offered a grace period in many types of insurance policies, including:

• Life insurance
• Home insurance
• Condo insurance
• Car insurance
• Health insurance

Always check your policy for information about a grace period before you need to use it. The length can vary, even between insurance plans offered by the same company. Some policies may not offer grace periods at all.

COBRA Health Insurance Grace Periods

Your insurer must give you a 30-day grace period for paying your premiums if you have COBRA health insurance. However, it has the option to cancel your coverage during that time, then reinstate it retroactively to the payment due date if you pay your premium within the grace period.

You could lose all COBRA rights if you fail to pay your premium within the grace period.

Affordable Care Act Grace Periods

Your health insurance may offer up a grace period of up to 90 days under the Affordable Care Act if you have a Marketplace plan, you qualify for advance payments of the Premium Tax Credit, and you've made at least one payment during the benefit year. But your grace period might be different if you don't qualify for advance payments of the Premium Tax Credit.

Are There Penalties?

You may have to pay a late fee if you miss your due date and file your payment during the grace period. Your insurance company might charge you higher premiums when you renew if you frequently miss your due dates.

Your insurance coverage may be canceled for non-payment if you don't pay during the grace period. Lapsed coverage can lead to a variety of problems, including paying out of pocket if you have a loss or accident. Other insurance companies may refuse to cover you, depending on their underwriting guidelines. You might face a rate increase when you apply for a new policy.

Losing coverage can become expensive quickly. You wouldn't just be responsible for covering the cost of any damage yourself if you let coverage lapse on your homeowner's policy. Your insurer could refuse to insure the home until repairs are complete. Your only choice could be an expensive policy for high-risk properties if your mortgage requires proof of insurance.

Lapsed coverage often means you have to take another medical exam before you can be approved for a new policy in the case of life insurance. This puts you at risk of being refused coverage or being forced to pay higher premiums if your health has changed.

Penalties for Affordable Care Act Health Insurance

Your grace period is still in effect even if you pay subsequent premiums on time if you have Marketplace health insurance under the Affordable Care Act. If you have a 90-day grace period and don't pay your August health insurance premium, and then you pay for September and October but still don't pay for August, your coverage would end at the end of October.

You would retroactively lose your coverage back to the last day of August. You could be required to pay back any payments that your health insurer made in September and October.

Alternatives to Insurance Grace Periods

Grace periods can come in handy, but becoming dependent on your grace period can leave you without insurance coverage or push your rate higher than you can afford. It could mean that you need to make changes to your insurance policy if you frequently find yourself needing to use your grace period,

You can ask your insurance agent to change your due date if it doesn't work with your payday schedule. Set up automatic payments via direct deposit or credit card if you frequently forget to pay your premium. Talk to your agent about less expensive coverage if you find that you can no longer afford your monthly premium. These changes can help you avoid using your grace period every month.