What is a grace period?
A grace period is an insurance policy provision that allows you to delay payment for a certain length of time without a lapse in coverage. Many types of small business insurance plans offer a grace period of 30 days. However, some policies have a shorter grace period, while others offer none at all.
For example, say your policy has a 30-day insurance grace period. On the day that your premium is due, you lose your company credit card and need to freeze all payments on it. The following day, a client who is visiting your office trips over a power cord and breaks her hip. Thanks to the grace period, you can still file a claim for damages, and your general liability insurance would likely cover legal expenses and the client’s medical costs.
Why insurance companies have grace periods
Insurance grace periods are typically regulated by each state to protect the public and businesses. The purpose of a grace period is to give some leeway to insurance customers who neglected to make a payment due to a misstep or circumstances out of their control.
A small business that is juggling many expenses might need to delay a payment by a day or two due to late-paying clients or a bank error. An insurance company that offers a grace period knows that such circumstances are usually a one-time thing and will want to continue to protect your business.
Do all insurance companies offer a grace period?
No. Insurance grace periods are governed by state and federal regulations, so they can vary depending on your location. Some states do not require a grace period at all, which means an insurance company in that state could cancel your coverage if you don’t pay your premium on time. Talk to your insurance agent to determine the specific terms for your policy.
What if you don’t pay your premium before the end of the grace period?
If you still haven't paid by the end of your insurer's grace period, the insurance company has the right to cancel your policy. In many cases, insurance companies see previous cancellations as a red flag and may charge higher premiums to applicants with a cancellation-riddled history.
How to pay your premium on time
If you want to ensure that you pay your premium before the end of the grace period, the following methods can help:
Organize your bill-paying processes: Highlight due dates on your calendar, and set aside time every month to pay your business’s bills.
Set up automatic payments: Setting up autopay will ease the burden of remembering to pay each month. Just make sure that you have enough money in your bank account to cover the monthly premium.
Pay your premium in full: Many insurance companies offer discounts if you pay your premium in full rather than spreading payments out over the course of a year. If you pay it in full, you’ll never have to worry about a missed payment.
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