As a small business owner, you have so much on your plate and are juggling so many expenses. We insurance companies totally get it: sometimes you just drop the ball and forget to pay your premium. Or maybe you're having a tough month and just haven't had the cashflow to make your payment. We understand, and that's why we offer something called an insurance grace period (also called "days of grace").
What Is a Grace Period in Insurance?
An insurance policy grace period is a period of time during which you are still covered by your insurance, even if you didn't pay your premium on time.
For example, let's say you own a cleaning business, and took out commercial auto insurance for the van you use to carry your equipment. You pay a premium on the 5th of every month. Your insurance company sent the bill in the mail, but due to a mix-up at the post office, the bill arrived late, and you paid on the 10th of the month instead.
In the meantime, though, on the 8th of the month, you forgot to engage the parking brake when you parked on an incline. Your truck rolled, damaging another vehicle before crashing into a ditch. In theory, your commercial auto insurance was supposed to cover the damage in cases like these, but you hadn't paid the premium on time. Are you still covered?
The answer depends on whether your insurance policy includes a grace period — and if so, how long it is. A grace period can be as short as 24 hours or as long as 30 days. If the grace period set out in your contract was at least 3 days, you would still be covered.
In the field of health insurance, there is often an even longer grace period — usually 90 days. If you receive health insurance from your employer and you leave your job, there should be an insurance grace period after termination, normally around 2 months.
What Kind of Grace Period Will My Insurance Have?
The duration of a grace period depend on a number of factors, the most important of which is the terms of your contract. Some insurance policies don't have a grace period at all. Grace periods are common for car, health, life, and home insurance, but may be granted with other types of insurance — such as business insurance. State law requires a grace period for certain types of insurance, too.
You'll need to check your specific insurance policy to see what terms it gives for a grace period. Note that paying your premium during the grace period might incur penalties or extra fees.
Why a Grace Period?
The purpose of a grace period is to give some leeway to insurance clients who may have missed a payment. For example:
- The client forgets to make the payment on time
- The bill arrives late due to a problem with the postal service
- The client is on vacation and doesn't receive the bill on time
- The payment is delayed because of a bank error
- The client is having a rough month and needs to delay the premium payment for a few days
Insurance companies know that you've paid your premiums with your hard-earned money each month, and we don't want you to lose your coverage just because of a one-time error.
What Happens If You Don't Pay Within the Insurance Grace Period?
If you are unable to make the payment even after the grace period, your insurance company is likely to cancel your contract, and your coverage will be terminated.
This is a situation you should avoid at all costs. Not only will you no longer be covered by your insurance, the fact that your contract was terminated for non-payment may affect the conditions of future insurance policies. Another insurance company may not agree to cover you, or may charge higher premiums, or refuse to offer you payment plans. Insurance companies sometimes take your credit ratings into account when they calculate your premiums, so failing to make a payment may look bad to them in the future.
If it looks like you may not be able to pay before the grace period is up, speak to your insurance agent right away. They may be able to help you come up with an arrangement that will allow you to keep your coverage.
Don't Try It at Home
Even if your insurance company has a generous, penalty-free grace period policy, you should never rely on it. Insurance is there to protect you and your business, and the grace period is there to give you some leeway in case you make a mistake. But if you make a habit of waiting until the last minute to pay your premiums, one day you're going to pay too late. You never know when you'll really need that coverage. You've already paid good money to keep your business covered. It would be a shame to put it all to waste.
How to Avoid Missing Your Premium Payment Due Date
If you pay on time, there will never be a need to pay your premiums during the grace period. Here are a few tips to help you avoid paying late:
- Stay organized. Make sure you have each payment's due date listed in your calendar. You should be keeping your books carefully anyway to manage your expenses and income, but pay special attention to ongoing expenses that need to be paid each month, and set aside time each month to pay your bills.
- Pay via electronic transfer or credit card. In today's world, there's no reason to leave your fate at the mercy of the unpredictable postal service. Use electronic transfer or pay with a credit card. Don't count on checks sent in the mail.
- Set up automatic payments. If possible, set up an automatic transfer or payment so you don't even need to remember to pay the bill each month. Just make sure there is enough money in the bank before the payment goes through.
To learn more about our insurance policies, see our business insurance page.