Look up the definition of ‘grace period’ in a dictionary (or on Google), and you’ll find it can mean ‘courteous goodwill’. Who couldn’t use some of that occasionally?
As it pertains to a business insurance contract (your policy is a contract between you and your insurance provider), a grace period is when a policyholder has to make a premium payment past due before their policy lapses or is cancelled by an insurance provider.
It’s designed to provide a buffer for policyholders facing temporary financial challenges making their premium payments on time.
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Insurance policy grace periods can vary depending on the insurance provider and your policy type. Usually, a business insurance grace period is a maximum of 30 days, but it can be as little as 24 hours. Read your insurance policy to know what your grace period is, as it will be stated in that document.
How Does a Business Insurance Grace Period Work?
Grace periods are not unique to small business insurance contracts. They are commonly built into other contracts, including mortgages, loans, and your home and auto insurance policies. They allow extra time to pay your premium if needed, preventing your policy from being cancelled.
Some insurance providers may charge a policyholder a small penalty or fee when making a late payment during the grace period. However, most providers offer flexible payment options if additional time is needed to update your account. Sometimes, an insurance provider may waive a late payment fee if it’s the first time you’ve missed a payment or if you’re late making a payment due to extenuating circumstances.
Does a Late Payment Affect My Insurance Premium?
While an insurance grace period is intended to shelter a policyholder from losing their coverage if they miss a payment and render them uninsured, there may be implications for missing payments beyond being charged a late fee.
The most significant impact late payments have on you is that they could give insurance providers the impression that you pose a significant risk. For example, if you have more than one non-sufficient fund (NSF) mark on your account, some insurance providers may consider that a warning sign. It could prompt them to charge you a higher premium when you renew a policy or purchase a new one from a different provider.
What Happens If My Insurance Policy Lapses or Is Cancelled?
A lapse in your insurance coverage is not a good thing. It means your insurance policy is no longer active because the policyholder has failed to uphold the requirements outlined in the terms and conditions, or the policy expired and wasn’t renewed.
In other words, when a policyholder doesn’t pay their premium payments on time as agreed, their coverage is cancelled or lapsed, leaving them unprotected from damage or loss. A policy that an insurance provider cancels can make it more challenging to get coverage in the future or lead to paying a higher premium.
Do I Still Need to Pay the Insurer If My Policy Is Cancelled?
Yes. Even if an insurance provider cancels your policy, you are legally obligated to pay the outstanding balance as soon as possible to get your insurance reinstated. If you have a favourable claims history, the insurance provider is more likely to reinstate your coverage.
But if you don’t settle the account, an insurer may send it to a collection agency to pursue payment. Much like any other debt you owe, if you don’t pay it and it is sent to collections, it can significantly damage your business’s credit score and make getting another policy extremely difficult and more expensive.
How to Avoid a Lapsed or Cancelled Business Insurance Policy
The economic environment remains challenging for small business owners and self-employed professionals.
If you’re in the unfortunate situation of having difficulty paying your premium on time or are concerned about it, here are three ways to deal with it:
1. Let Your Broker Know
Speak to a Zensurance broker or support team member if you struggle with your premium payments. They may be able to help by making changes to your coverage or even switching insurance providers.
2. Budget for and Automate Payments
Your business’s budget should include the cost of insurance, whether you pay it annually, semi-annually, quarterly, or monthly. Automating your payments helps ensure that you never miss a scheduled payment.
3. Keep Your Contact Info Up to Date
It’s not hard to miss or forget about a deadline, email, or letter in the mail. Nevertheless, you must be mindful of the due dates for making payments.
To avoid that problem, ensure your contact information is updated with your broker and consider signing up for email notifications if you haven’t. Periodically checking in with your broker is never a bad thing. Besides, it allows you to ask questions about your existing coverage and discuss other concerns.
– Updated December 6, 2023.
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