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What Is an Insurance Grace Period?

Dec. 13, 2020
3 mins
A couple look concerned as they work through paperwork

Grace, as defined by Oxford Languages, can mean “simple elegance or refinement of movement.” But in contract law, take the alternate definition: courteous goodwill.

A grace period, in contract law, is the time a past-due payment can be made without penalty. Typically, this period is 15 to 30 days, though it varies from contract to contract. Grace periods are commonly incorporated into mortgage and insurance contracts; through “courteous goodwill,” you don’t lose your home or insurance if you’re a few days late with a payment.

If those days stretch into weeks or months, though, that goodwill could evaporate. And with many people facing a loss of income due to the impact of the COVID-19 pandemic and wondering if they can make rent or mortgage payments, hard decisions have to be made about money management. Typically, a cancelled home insurance policy invalidates a mortgage contract, so those payments are often rolled into the mortgage. That’s not the case with car insurance; if your policy is terminated, you can’t legally drive anywhere in Canada.

What if I fall behind in my insurance payments?

In Ontario, insurers are required to give 15 days’ notice before cancellation of an auto policy by mail. If the notice is served in person, that window becomes five days. Don’t ignore such a notice — contact your insurance provider as soon as possible to acknowledge receipt and negotiate a plan to bring your payments up to date. (This is one of many reasons it’s important to have a good relationship with your provider.)

Important things to remember:

  • During this grace period, you are still insured. If you have to make an insurance claim, your provider is required to honour it. (That includes life insurance if you pass away during the grace period.)
  • Many insurers are becoming more flexible during the pandemic, waiving NSF (non-sufficient funds) penalties, spreading missed payments over the rest of the year, and delaying cancellation of policies for those who have lost jobs. Talk to your insurer in advance if financial troubles loom.
  • After one or two NSF occasions, you’re entitled to keep your insurance for up to 30 days in Ontario. When the payment situation is remedied, your insurance company may reinstate your policy, but — and this is a big but — they are not required to do so.
  • Some late payments could push you into a higher risk category, meaning more expensive premiums, which can only exacerbate the problem.
  • Your insurance company is likely billing you a month in advance — in December, you’re being billed for January’s insurance. That allows some wiggle room for late payments, though your insurer still may charge late fees.
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What if my insurance policy is cancelled?

The most obvious and immediate repercussion of a cancelled auto insurance policy is that you can’t legally drive. Penalties for driving without insurance vary from province to province. In Ontario, fines start at $5,000, with a 25% surcharge by Ontario insurance regulators. Your licence could be suspended for up to a year. In Alberta, the minimum fine is $2,875 but can rocket to $10,000, even for a first offence.

But there’s more:

  • You’re still responsible for what you owe your insurer. Defaulting can mean your account is sent to collections, and then turn up in your credit rating.
  • If you’ve had a cancellation, it will affect your insurance rates in the future. Continuity is important in developing a solid driving record. Future insurers may charge through the nose simply because you’ve had a cancellation or treat you as a novice driver with the attendant higher rates, ruining your good driving record.

Keeping up your insurance continuity is the best strategy for managing your policy premiums. In these pandemic-challenged times, that may be difficult. Be open with your insurer about possible financial problems in advance and look at contingency plans to keep current.

Dave Webb

Dave Webb is a writer and editor of 30 years’ experience. He has written about municipal politics, conservation issues, information technology, medical technology, music, and the manmade diamond industry along with insurance. And some sports. He is also an avid semi-professional roots musician. He lives in Toronto.

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