What Is an Insurance Grace Period?

Insurance Grace Periods Explained

Woman sitting on couch reviewing her insurance policy and grace period
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An insurance grace period is the 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. It also specifies whether a claim will be paid if payment is received within the grace period.

Grace periods vary depending on insurance type and company, and not all insurance companies have grace periods. If you don't pay your insurance premium by the end of the grace period, your insurance company could assess penalties or even cancel your coverage.

What Is an Insurance Grace Period?

An insurance grace period is the amount of time the insurance company will allow for the premium to be received while still maintaining your coverage. An insurance grace period is not the same as an insurance waiting period, which is the amount of time you must wait before your coverage goes into effect.

Types of Insurance Grace Periods

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

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

Your policy will define what the grace period is, if any.

For example, many car insurance carriers offer a grace period after the date of your payment due date during which you will not be penalized. However, they are not all created equal and can vary a lot by insurance carrier. Grace periods can certainly come in handy, but it is important not to overuse them. Becoming dependent on your grace period can get you in a tight spot in the future. 

How Long Is an Insurance Grace Period?

If your policy has a grace period, it could be short as 24 hours or as long as 30 days. Unfortunately, there is not a standard grace period offered by all insurance carriers. It varies by insurance policy and state. Some companies offer a short grace period with no late fee and an extended grace period which includes a late fee.

Your health insurance may offer up to a 90-day grace period based on certain criteria under the Affordable Care Act. In that case, you must have a marketplace plan, qualify for advance payments of the premium tax credit, and must have made at least one payment during the benefit year.

Definitely check with your insurance agent about your carrier’s specific policies well before you need to rely on the information.

Grace Period Variations

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 agent or contact your state insurance commissioner to find out the specifics of your type of policy.

The True Cost of Your Insurance Grace Period

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.

Your first step when you foresee trouble with your insurance payment is to call your representative. If you can't pay your premium in full, they may help you with payment plans or monthly bank withdrawals. While some companies may charge more for monthly payments, they may offer discounts for automatic payments.

If you don't pay within the grace period, your insurance coverage may be canceled for non-payment. If that happens, you won't have any insurance coverage if you have a loss.

What's worse, not only will you not be insured, but other insurance companies might refuse to cover you, depending on their underwriting guidelines. A lapse in coverage can affect your rates, too.

In the case of a life insurance policy, lapsed coverage means you may have to take a new medical exam. That puts you at risk for being refused coverage or being forced to pay higher premiums for a new policy if your health has changed.

If you do not like your payment date or it is inconvenient given the way your payday falls every month, ask your insurance agent to help you change your due date. If mailing in your payment is a hassle, look into paying online via direct deposit or credit card. Do not rely on your grace period every month; it will always cost more money in the end.

How Grace Periods Can Affect a Claim

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.

For example, say you missed paying your home insurance premium on time and you missed the grace period, too. Then a pipe bursts, causing water damage. Your homeowner's insurance canceled your policy for non-payment, so you'd be responsible for covering the cost of the damage yourself.

Not only that, but the company could refuse to insure the home until repairs are complete. If your mortgage requires proof of insurance, your only alternative for insuring your water-damaged home could be an expensive policy for high-risk properties.

This example illustrates how one late insurance payment can get very expensive, very quickly. 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.