Millions of people are out of work in the United States; the economic effects of the coronavirus pandemic have hit businesses and employees hard. Bills are going unpaid while people choose which bills to pay now and which bills to postpone. It’s not easy to choose between paying bills like electricity, credit cards, or insurance. All three are necessary, however, some have worse consequences for late payments.
Late insurance payments have negative consequences
All bills are important to pay, but some have dire consequences for non-payment. For example, late insurance payments can lead to a cancelled policy, which makes it hard for some people to get another policy. They qualified when they bought the policy, but may not pass another health exam to get the same policy at the same price. If that’s the case, they can expect to pay a much higher premium if they’re accepted at all.
While some government officials have imposed state-wide moratoriums on rent and mortgages, it’s up to insurance companies to help their customers. Anyone behind on insurance payments must make payment arrangements directly with their insurance company to avoid late fees and penalties. However, some insurance companies have temporarily changed their policies to make things easy.
How insurance companies are handling coronavirus-related late payments
Insurance companies already provide a short grace period for late payments. For example, car insurance companies usually have a 7-day grace period, while life insurance policies generally wait 30 days before charging interest or cancelling a policy.
In the wake of the COVID-19 crisis, several popular insurance companies are changing their policies to make life easier for policy holders. Allstate, Liberty Mutual, Nationwide, Progressive, State Farm, USAA, and several other companies have extended their grace periods, suspended late fees and penalties, and some have decided not to cancel policies for a specific period of time. For many, extended grace periods will be the only way they can hang onto their policy.
Some companies, like Progressive, are offering additional payment leniency to customers who specifically ask for it. NJM Insurance is offering flexible payment plans so customers can get caught up with past-due payments without losing their coverage. Nationwide is also offering extended help to customers based on individual circumstances. In any case, it doesn’t hurt to ask for help.
Why insurance payments are important
Of all the bills people choose to pay during the coronavirus pandemic, insurance is probably at the top of that list. Insurance companies can drop coverage even after just one missed payment. Worse, insurance companies aren’t obligated to reinstate your coverage once they drop your policy. Once your policy is dropped, you’ll need to obtain another policy from scratch. That means going through the qualification process again.
Next to car insurance, life insurance is probably the most important policy to pay on time. Insurers can deny life insurance claims for unpaid premiums. For example, say you have a life insurance policy that lapses for nonpayment. If you die before the policy is reinstated, your beneficiary probably won’t receive a payout.
Most life insurance companies will consider reinstating your coverage if you formally apply for reinstatement. However, the qualifications are strict and you must prove that you aren’t going to be a risk to insure.
The other thing to consider is whether life insurance policies will pay out for COVID-19 deaths. According to Nerdwallet, most people with life insurance will be covered if they die from COVID-19. Although, there are several exceptions. For instance, any claim can be denied for submitting incomplete or inaccurate information on the application. Lying about weight or income seem small, but can prevent a payout.
Insurance companies are businesses, too
It’s hopeful to think that insurance companies will give people more time to get caught up with payments before dropping policies. However, that’s not a likely scenario since they’re for-profit corporations. Just like every other business, insurance companies need to focus on their bottom line and that might mean some policy holders will be out of luck.
Interesting related article: “What is credit control?“