In short: 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).
This can be compared to a credit card bill. Typically 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.
Understanding the Insurance Grace Period
Insurance grace period is a small timeframe that an insurance company can grant to the customer if he/she makes any delays in premium payment. During this time, the coverage remains active. The terms of the grace period are defined in the contract. There’s even a clause about the penalty if the premium is still not paid after the grace period.
We know what you are thinking: Why didn’t I know about this?
It’s because not all insurance agencies offer a grace period in their contract. Moreover, the terms of the grace period are based on the coverage you have. The bigger the coverage, bigger the penalty will be if the insurance agency doesn’t decide to cancel the policy.
Following are a few questions about insurance grace period, which you should know the answers to.
How long does the grace period last?
The timeframe for the grace period varies by state and every insurance agency has different rules. The time given to a policy holder to make the payment before the coverage is cancelled might be 24 hours or 30 days. When it comes to health insurance, according to the Affordable Health Care Act, a grace period may last for up to 90 days.
How does the grace period help a policyholder?
Let’s assume that something unfortunate happened. Maybe you lost your job or were in an accident. Since you had no income to pay for the premium amounts, you had to miss on month’s payment. If your contract mentions grace period, then you might have 30 days, give or take, to make the payment.
How does the grace period vary?
The grace period depends on three things:
- Federal or state regulations
- Insurance terms written in the contract
- Policy type
On which policies is grace period applicable?
The good news is that a grace period is applicable on most of the big policies such as home insurance, life insurance, health insurance, car insurance, and condo insurance. Before buying an insurance policy, do ask the agent whether the company offers grace period or not.
Is there a penalty on the grace period?
It all depends on the insurance agency. You might be charged a very small penalty or nothing at all. At an average, the penalty is usually between $8 and $12, which is charged every day until you make the payment. Compared to the premiums, this is a small amount but that doesn’t mean you keep paying the penalty until you come up with cash. The insurance agency might cancel the contract once and for all after 2 days or a week.
What if the premium payment is not made before the grace period ends?
Let’s assume that you are still jobless and the insurance grace period is about to end. If you are unable to make the payment, then tell your agent immediately. There a few other options you can explore such as monthly bank withdrawals or payment plans. In fact, on a monthly plan, you might get a discount on the premiums. It’s important to maintain an open line of communication with your agent to make sure that he/she knows the difficulties you are facing. This way, the agent will be able to advise you better on what step to take next.
What happens when the grace period runs out?
If the grace period runs out and a payment is still not paid, one of two things can happen:
- You insurance coverage might be cancelled
- You might not receive the amount of coverage and benefits you signed up for in the first place
The former scenario creates a bigger a problem for a person. Let’s assume that the insurance company ended the contract with you. As a result, you are probably going to lose thousands of dollars here. While this might seem a big problem for you but there’s a bigger one waiting ahead for you.
When you will next approach an insurance agency, you might be turned away. Even if they decide to take you on, you might not receive any discounts. Moreover, the terms in the contract will be stricter.
When it comes to a life insurance policy, you will be asked to take the medical exam. This can be quite risky if your health has suffered in the past few months. Be prepared because the benefits you will get in your new policy will be way less than what you got in the original policy.
It is quite important to understand that insurance grace period is not the answer to your late payments. If an insurance agency offers this benefit then do not make use of it until absolutely necessary. Limit its use to when you are suddenly out of job or there’s a new addition to your family. One more thing you need to ask your insurance agent is that how many times can the grace period be taken advantage of. Maybe it is a onetime thing and if that is the case, you need to make a wise decision.
A grace period gives you the benefit of getting your financial affairs into order. This way, even if you don’t have a job by the end of the grace period, you will have plenty of cash reservoirs to dip into.
If you are looking for a qualified insurance agent who holds years of experience in this field, then visit Pawson. The company provides all types of insurance policies for homes, personal properties, and businesses. To know more about their policies, contact them at 203-481-8898.
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