What Is an Insurance Grace Period?

Definition & Examples of Insurance Grace Periods

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An insurance grace period is the length of time you have after your due date to pay your premium before your insurance company cancels your policy. It gives you a fair chance to pay your bill when circumstances outside your control delay your payment.

Learn how grace periods work and what happens if you are late paying your insurance premium.

What Is an Insurance Grace Period?

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

An insurance grace period is not the same as an insurance waiting period. A waiting period is the amount of time you must wait after signing up and paying for a policy before your coverage goes into effect.

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

Insurance grace periods vary by state as well as by company. Some states require no grace period at all and 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 insurance commissioner to find out the specifics for your type of policy.

How Does an Insurance Grace Period Work?

If your insurance policy has a grace period, it serves as extra time for you to pay your premium. Usually, you will continue to be covered for the whole grace period until you pay your premium. If you fail to pay your premium by the end of the grace period, your coverage is canceled.

If your policy has a grace period, it could be short as 24 hours or as long as 30 days. There is not a standard grace period offered by all insurance carriers. It varies by insurance policy and state.

If you know you won't be able to pay your premium on time, call your insurance representative. They may be able to help you set up monthly bank withdrawals or a payment plan so you don't have to pay the whole premium at once.

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 which includes a late fee.

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

Be sure to know whether your policy contains an insurance grace period and how long it is, so you never put your coverage at risk.

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, and some policies may not offer one at all.

COBRA Health Insurance Grace Periods

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

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

Affordable Care Act Grace Periods

Under the Affordable Care Act, your health insurance may offer up a grace period of up to 90 days if you:

  • Have a Marketplace plan
  • Qualify for advance payments of the premium tax credit
  • Have made at least one payment during the benefit year

If you don't qualify for advance payments of the premium tax credit, your grace period may be different.

Are There Any Penalties?

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

If you don't pay within the grace period, your insurance coverage may be canceled for non-payment. Lapsed coverage can lead to a variety of problems, such as:

  • Paying out of pocket if you have a loss or accident
  • Other insurance companies refusing to cover you, depending on their underwriting guidelines
  • Rate increases when you apply for a new policy

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

In the case of a life insurance policy, lapsed coverage often means you have to take a new medical exam before you can be approved for a new policy. If your health has changed, this puts you at risk of being refused coverage or being forced to pay higher premiums.

Penalties for Affordable Care Act Health Insurance

If you have Marketplace health insurance under the Affordable Care Act, your grace period is still in effect even if you pay subsequent premiums on time. For example, if you have a 90-day grace period and don't pay your August health insurance premium, then 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 and 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. 

If you frequently find yourself needing to use your grace period, it could mean that you need to make changes to your insurance policy.

  • If your current payment due date doesn't work with your payday schedule, you can ask your insurance agent to change it.
  • If you frequently forget to pay your premium, set up automatic payments via direct deposit or credit card.
  • If you can no longer afford your monthly premium, talk to your agent about less expensive coverage.

These changes can help you avoid using your grace period every month.

Key Takeaways

  • An insurance grace period is the length of time you have after your due date to pay your premium before your insurance company cancels your policy.
  • Grace periods vary by insurer, policy, and state. They may range from 24 hours to three months. Some insurance policies have no grace period at all.
  • If you file your payment during the grace period, you may have to pay a late fee. If this happens more than once, your insurance company might charge you higher premiums when you renew.
  • If you don't pay by the end of the grace period, your insurance carrier can assess penalties or cancel your coverage, leaving you uninsured.

Article Sources

  1. U.S. Department of Labor. "FAQs on COBRA Continuation Health Coverage for Workers," Page 8. Accessed July 25, 2020.

  2. HealthCare.gov. "Premium Payments, Grace Periods & Termination." Accessed July 25, 2020.