What Is an Insurance Grace Period?

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, forcing people to make tough decisions about money management. Suppose you choose to go without car insurance. In that case, you can’t legally drive anywhere in Canada if your policy is terminated.

What if I fall behind with my insurance payments?

In Ontario, insurance providers are required to give 15 days’ notice before the 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 insurance providers 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 insurance provider 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 a more expensive premium, 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 insurance provider still may charge late fees.

What if my insurance policy is cancelled due to late or non-payment?

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 insurance provider. Defaulting can mean your account is sent to collections, which can impact your credit rating.
• Continuity is important in developing a solid driving record. If you’ve had a cancellation, it will affect your insurance rate in the future. Insurance providers 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 premium. If you face financial hardships, be open with your insurance provider before your payment is due and look at contingency plans to keep current.